US Market: Brokerages turn hawkish as sticky inflation boosts Fed hike bets

A growing number of major brokerages expect the Federal Reserve to raise interest rates this week after stronger-than-expected inflation data cast doubt on whether price pressures can ease without further monetary tightening, Reuters reported.

Goldman Sachs, J.P. Morgan, HSBC and Deutsche Bank are forecasting a 25-basis-point rate increase at the Fed's September 15-16 meeting. Several of the brokerages also expect interest rates to remain elevated for longer as policymakers seek to bring inflation back to the central bank's 2% target, Reuters said.

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The shift in expectations follows data showing U.S. consumer and producer prices rose more than expected in August. Oil prices have also climbed above $100 a barrel amid renewed hostilities in the Middle East, raising concerns that higher energy costs could keep inflation elevated.

According to Reuters, the growing expectations for a rate hike represent a sharp reversal from earlier this year, when many economists expected the Fed to remain on hold after keeping rates unchanged through 2026 following a quarter-point cut in December 2025.

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HSBC has turned more hawkish, with its economists backing a September rate hike on the view that a lack of further progress on inflation has strengthened the case for tighter policy.

J.P. Morgan has also shifted toward a more hawkish outlook following the latest inflation data. The bank expects the Fed to raise rates again this year and has increased its estimate of the long-run policy rate to 3.25%.

The outlook for further monetary tightening will be a key focus when Fed policymakers conclude their meeting on Wednesday. Investors will also monitor the Bank of Japan for signals on its own interest-rate policy.

Financial markets are now pricing in roughly a 90% probability of a quarter-point Fed rate hike this month, up from around 70% before the latest inflation data, according to CME's FedWatch Tool. Markets are also pricing in another increase in December.

The shift in expectations has been accompanied by higher bond yields and rising energy prices, adding to concerns that inflation could prove more persistent than previously expected.

Goldman Sachs, however, continues to expect the Fed to cut rates twice in 2027, although it has pushed those reductions further out. The bank sees the expected September increase as being driven more by market pricing and the Fed's reaction function than by a fundamental deterioration in inflation trends, Reuters reported.

The divergent views underline the uncertainty surrounding the Fed's policy path. While stronger inflation and higher oil prices are strengthening the case for near-term tightening, some economists still expect inflation to resume its downward trend, potentially allowing the central bank to cut rates once price pressures become more firmly contained.

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