Goldman Sachs: Fed Holds Steady in October, Expected to End Tightening Cycle After December Hike

What Signal Did the October Pause Send About the Pace of Hikes?

After raising rates at its previous meeting, the Fed left the federal funds rate unchanged in October, in line with widespread expectations. Goldman Sachs believes recent comments by officials point to a compromise of raising rates at every other meeting, and that this meeting provided no clear reason to depart from that pace.
The post-meeting statement added language saying that “accumulating more information” would help determine the appropriate policy stance. Goldman Sachs interprets this as a mild signal of slower tightening: the information obtained between two consecutive meetings may not be enough to support another decision.

Goldman Sachs maintains its existing forecast: the Fed will raise rates for a second and final time in December, bringing the federal funds rate to 4%–4.25%.
This path depends on inflation. If inflation exceeds Goldman Sachs’ expectations, the Fed could also raise rates for a third time in March of the following year.

Fed Chair Warsh emphasized the strength of the economy and labor market: business investment spending is growing strongly, employment growth has accelerated from the previous year, and unemployment benefit claims have fallen to a multigenerational low. But he said that neither he nor most Federal Open Market Committee members believe the economy is overheating, or that economic growth is pushing up inflation or making it harder to fight.
Explaining why rates were not raised in October, Warsh noted that inflation compensation and inflation expectations had moved in a favorable direction, and that the previous meeting had already removed some policy accommodation.
Warsh believes the rate hikes are working: financial conditions have tightened somewhat, but are not yet tight. Goldman Sachs therefore concludes that the chair may believe a limited number of hikes will be sufficient, while inflation still needs to be monitored for any overshoot of expectations.

Warsh asked the working groups to submit reports by the end of 2026 and expects most of them to finish; the Federal Open Market Committee will then consider their conclusions and possible policy changes in the first quarter of 2027.
The committee will continue to meet eight times a year. Beginning in the fall of 2027, one meeting in 2027 and two in 2028 will be dedicated to broad monetary policy strategy; these meetings will not issue policy statements or vote on the federal funds rate.