Written by: Rita

The Federal Reserve raised the target range for the federal funds rate by 25 basis points to 3.75-4.00%, marking the first rate hike since July 2023. The median of the dot plot indicates that there will be one more rate hike in 2026, with unchanged policy in 2027. Goldman Sachs noted in a report released on September 16, 2026, that this rate hike was approved unanimously, and the statement emphasized that inflation "remains high," and the actions will support a more timely return of inflation to the 2% target.

Goldman Sachs analyst Jan Hatzius outlined key points in the report, including the distribution of the dot plot, upward revisions of inflation forecasts, upward revisions of economic forecasts, and an increase in long-term interest rate expectations. The firm expects the median in the SEP to predict one more rate hike in 2026, with rates remaining at 4.00-4.25% in 2027, dropping to 3.75-4.00% in 2028, and dropping to 3.50-3.75% in 2029. The long-term federal funds rate increased from 3.06% to 3.25%.

25 Basis Points Rate Hike Approved Unanimously

The committee unanimously approved this rate hike. The FOMC raised the target range for the federal funds rate by 25 basis points to 3.75-4.00%, and the statement pointed out that inflation "remains high," and this policy action will support a more timely return of inflation to the 2% target. The statement reiterated that economic activity is "expanding at a solid pace," "productivity growth is strong," "capital investment is robust," and employment growth "is in line with the labor force."

Goldman Sachs noted that this is the first rate hike since July 2023 and is a significant turning point in this tightening cycle. The committee has an optimistic view of the current economic situation but limited confidence in inflation's decline, thus choosing to continue tightening. Chairman Warsh did not submit a forecast, consistent with the June meeting.

Dot Plot Indicates One More Hike This Year

The median in the SEP predicts one more rate hike in 2026. The specific distribution is: two participants forecast a single rate hike in 2026 (including this one), twelve participants forecast two rate hikes, and four participants forecast three rate hikes. Goldman Sachs had previously expected a 10 to 8 majority showing only one rate hike, while the actual dot plot was more hawkish than the firm's expectations.

The dot plot also shows that the median federal funds rate for 2027 is 4.00-4.25%, for 2028 is 3.75-4.00%, and for 2029 is 3.50-3.75%. The long-term federal funds rate median rose from 3.06% to 3.25%. Goldman Sachs believes that the distribution of the dot plot indicates divergence within the committee regarding the rate hike path, but the median points to one more hike this year.

Minor Adjustments to Inflation Forecasts

The FOMC has insufficient confidence in the decline of inflation. The median in the SEP predicts the overall PCE inflation for 2026 will be revised up by 0.1 percentage points to 3.7%, with core PCE inflation revised up by 0.1 percentage points to 3.4%. The overall PCE and core PCE forecasts for 2028 are also revised up by 0.1 percentage points to 2.1% and 2.2%, respectively. Goldman Sachs pointed out that this adjustment shows limited expectations for downward revisions due to method adjustments later this month, or a choice not to include these expectations.

Goldman Sachs believes that the upward revision in inflation forecasts is consistent with the hawkish tone of the dot plot. Core PCE forecasts in 2026 remain as high as 3.4%, far exceeding the 2% target. The committee retains room for further rate hikes until there is a clearer downward trend in inflation data.

Simultaneous Upward Revisions to Economic Forecasts

The assessment of the U.S. economic fundamentals is relatively strong. The median in the SEP predicts GDP growth for 2026 will be revised up by 0.1 percentage points to 2.3%, and for 2027, it will be revised up by 0.1 percentage points to 2.4%. The unemployment rate forecast is revised down: 4.1% for 2026, 4.1% for 2027, and 4.1% for 2028. Goldman Sachs noted that the simultaneous upward revisions of economic forecasts and inflation forecasts show an increased confidence of the FOMC in achieving a soft landing for the economy.

Goldman Sachs believes that the combination of robust economic growth, low unemployment rates, and high inflation provides the basis for the Federal Reserve to continue raising rates. The committee opted to raise rates in September rather than wait for more data, indicating a lower tolerance for inflation risks. The dot plot indicates one more rate hike within the year, suggesting that the Federal Reserve does not wish to ease policies too soon.

Long-Term Interest Rate Expectations Shift Upward

Goldman Sachs provided an assessment of the policy path in the report. The firm believes that this rate hike and the dot plot pointing to one more hike within the year indicate that the Federal Reserve has limited confidence in inflation returning to the 2% target, and the policy path still depends on data. If inflation data continues to exceed expectations, the Federal Reserve may accelerate the pace of rate hikes.

Goldman Sachs noted that the median long-term federal funds rate increased to 3.25%, indicating an upward shift in neutral rate expectations. This change may put pressure on long-term asset valuations. The dot plot shows unchanged policy for 2027 and a rate cut starting in 2028, which indicates that rates will be maintained at high levels for a longer time than previously expected.

The dot plot indicates one more hike within the year, and the Federal Reserve's anti-inflation stance has not softened.

Disclaimer

This article is a compilation and interpretation of the research report from third-party brokerage (Goldman Sachs, September 16, 2026), combined with publicly available market information. The ratings, target prices, earnings forecasts, and related judgments quoted in the article are solely the views of the brokerage analysts and represent the position of their respective institutions, not that of Chao Xiang Research, and do not constitute any investment advice.

The market has risks, and decisions should be made independently. This article should not be considered as a basis for buying or selling any securities.