Goldman Sachs: Persistent Inflation Could Trigger Back-to-Back Fed Hikes from September

 

Goldman Sachs Vice Chairman and former Dallas Fed President Rob Kaplan stated that the Federal Reserve may need to hike interest rates as early as September if inflation remains sticky.

 

"If inflation doesn't cool between now and September, the balance of risks makes an autumn move prudent," Kaplan noted in an interview.

 

Following the Fed's hawkish hold on Wednesday at 3.50%–3.75%, nearly half of the policymakers signaled a rate hike by year-end 2026. Fed Chair Kevin Warsh reinforced this by doubling down on the 2% inflation target, triggering a sharp bond sell-off.

 

The policy-sensitive 2-year Treasury yield surged up to 17 basis points on Wednesday—its largest single-day gain since March—before easing slightly in Thursday's Asian session.

 

Swap traders have now fully priced in a 25-basis-point hike by October, a dramatic acceleration from pre-meeting expectations that pushed the first hike out to March 2027.

 

Kaplan emphasized that central bank moves are rarely one-off events, typically occurring in sequences of two or three.

 

"If they move in September, you need to prepare for one or two more hikes down the road," he warned, suggesting current policy may still be too loose.

 

However, Kaplan urged markets not to overinterpret the latest dot plot, noting it may not yet account for the recent US-Iran peace accord and the reopening of major shipping lanes, which could alter the macro outlook by September.

 

Kaplan's warning joins a growing chorus of hawkish Wall Street calls.

 

Citadel Securities recently warned that sticky, broadening inflation could force a September restart, predicting up to 75 basis points of tightening this year, while fixed-income giant PGIM models three rate hikes in 2026.