The last bank standing on Wall Street has switched sides—consensus has been fully reached— Goldman Sachs now expects the Fed to raise interest rates by 25 basis points in September, reversing its previous forecast of no change. Currently, the market is pricing in about an 86% probability of a 25bp hike in September, and there’s even trading activity anticipating another hike in December. Back in September 2024, the Fed kicked off its rate-cutting cycle when CPI was still far above 3%. Two years later, even though CPI has dropped to a five-year low of 2.4%, the market widely expects the Fed to have no choice but to start a rate-hiking cycle next week. The Fed is really in a tough spot— After the last rate-cutting cycle ended, the Fed realized that the U.S. economy didn’t achieve a soft landing as per the traditional playbook. Instead, under high fiscal deficits, trade protectionism, and geopolitical energy shocks, the economy evolved into a structure more prone to recurring inflation than before. The current inflationary forces are ones the Fed finds hard to truly control: 1⃣ Energy: Behind this are Middle Eastern supply and transportation risks. Rising prices will ripple through gasoline, aviation, transportation, chemicals, manufacturing, and food costs, seeping into core inflation. 2⃣ Tariffs: Similar to oil prices, tariffs essentially act as supply-side taxes. When import costs rise, businesses either squeeze profits or raise prices—someone has to bear the burden in the end. No room left—existing inflation investment strategies might already be obsolete!