TLDR
- Goldman Sachs, JPMorgan, HSBC, and Deutsche Bank all now forecast a quarter-point Fed rate hike at the Sept. 15-16 meeting
- Market odds of a hike jumped to 88-89% after hotter-than-expected August inflation data
- Crude oil crossed $100 a barrel, adding to inflation concerns
- Wall Street strategists say the bull market can survive rate hikes as long as earnings remain strong
- The S&P 500 has historically risen 9% in the 12 months following the first rate hike of a cycle
Major banks have changed their forecasts ahead of this week’s Federal Reserve meeting, with Goldman Sachs, JPMorgan, HSBC, and Deutsche Bank all now calling for a quarter-point interest rate increase.
There will be a rate hike next week, warns Goldman Sachs 🚨 🚨 pic.twitter.com/hpk38SCYEW
— Barchart (@Barchart) September 12, 2026
The shift follows hotter-than-expected August inflation data and a surge in crude oil prices above $100 a barrel, driven by escalating tensions in the Middle East.
Market odds of a hike at the Sept. 15-16 meeting climbed to roughly 88-89%, up from 67-70% before last week’s inflation print. The Fed has held borrowing costs steady all year after a quarter-point cut at the end of 2025.
What Changed at Goldman Sachs
The reversal is a sharp turn for Goldman Sachs. As recently as last month, the bank had called a September hike “very unlikely.” Chief economist Jan Hatzius had argued that two months of softer jobs and inflation data made any shift toward hikes hard to justify.
At that point, CME FedWatch data put the odds of a September increase at around 30%. Goldman’s base case pointed to further improvement in inflation, not a reversal.
Now the bank has published a note framing the expected hike as a response to market dynamics. Goldman still maintains its outlook for two Fed rate cuts in 2027, though pushed back from its earlier timeline.
HSBC economist Ryan Wang said it plainly: “Lack of inflation progress has tipped the balance.”
JPMorgan raised its estimate of the long-run policy rate to 3.25%. Its economists described the prior week as one of “rising bond yields and energy prices and a firm enough set of inflation readings” to make a hike more likely than not.
What This Means for Stocks
Despite the rate hike outlook, Wall Street strategists broadly expect the bull market to hold up. Goldman Sachs strategists led by Ben Snider said earnings, not rates, remain the most important driver for stocks.
The S&P 500’s forward price-to-earnings ratio has dropped from 22 at the start of the year to 19, even though the index sits within 2% of its record high.
Historically, the S&P 500 has fallen about 2% on average in the three months after the first rate hike of a cycle, but has risen 9% over the following 12 months.
Morgan Stanley strategists said high-quality stocks are likely to outperform if the Fed hikes as expected. They noted that cyclicals and momentum stocks have historically beaten the market around the first hike of a tightening cycle.
JPMorgan said a shallow hiking cycle should be manageable for stocks. The main risk, the bank said, would be a re-acceleration of inflation forcing a broader cycle of hikes.
The key near-term risk flagged by Morgan Stanley is a sudden spike in oil prices tied to a closed Strait of Hormuz, which could turn a modest policy adjustment into a prolonged hiking cycle.
The Fed’s two-day policy meeting closes on Wednesday.
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