Global banks coalesce around Fed hike call after inflation surprises

The outlook for further Fed tightening will be in focus this week as policymakers conclude their meeting on Wednesday, while investors also watch the Bank of Japan for policy signals.

J.P. Morgan said the latest inflation data cast doubt on a sustained disinflation trend, leading it to forecast another Fed rate hike this year and raise its estimate of the long-run policy rate to 3.25%.

Markets are pricing in about 90% chance of a quarter-point Fed rate hike this month, up from about 70% before the latest inflation data, with another increase expected in December, according to CME's FedWatch Tool.

In a separate note on Sunday, Goldman Sachs said it still expects two Fed rate cuts in 2027, though later than previously forecast, as it sees this week's expected hike as driven more by market pricing than inflation fundamentals.

A growing number of brokerages expect the Federal Reserve to raise rates this week after stronger-than-expected inflation readings raised doubts that price pressures would ease without further tightening.

Goldman Sachs, J.P. Morgan, HSBC and Deutsche Bank forecast a quarter-point hike at the Fed's September 15-16 meeting, with several expecting rates to stay higher for longer to bring inflation back to its 2% target.

The shift follows data showing U.S. consumer and producer prices rose more than expected in August, while oil prices climbed above $100 a barrel amid renewed hostilities in the Middle East, raising concerns that inflation pressures could remain elevated.

The growing hawkishness marks a sharp turnaround from earlier this year, when many economists expected the Fed to remain on hold after keeping rates unchanged throughout 2026 following a quarter-point cut in December 2025.