Goldman Sachs warns: The Federal Reserve may raise interest rates as early as September, with further rate hikes possible in the future.

Goldman Sachs Group vice chairman and former Dallas Fed President Kaplan said that if inflation continues to remain high, the Fed may need to raise rates as early as September. Kaplan stated in an interview, "If inflation data released between now and September does not show a significant cooling, I actually think, from a risk-balancing perspective, taking some action would be prudent, whether in September or in the fall." "That would be the more reasonable course of action." Kaplan stated that if inflation remains stubborn, it would indicate that current monetary policy is still too loose. He also pointed out that the Fed's policy actions are rarely "one-off operations," and rate adjustments usually occur in the form of two or three consecutive actions. He added, "Therefore, I believe that if action is taken in September, one must be prepared. There may be one or even two more rate hikes afterwards." The Fed kept the federal funds rate target range unchanged at 3.5% to 3.75% as scheduled on Wednesday. Fed Chairman Powell stated at a press conference that policymakers will be committed to "achieving price stability." He acknowledged that the inflation rate has been consistently above the Fed's 2% target and said, "Continued high prices are a burden for the American people." Powell reiterated at the press conference that the 2% inflation target is the Fed's long-standing core mission, and the inflation framework will not be reconsidered until stable inflation returns to the target range. He admitted that the Fed has not effectively communicated its determination to lower inflation over the past five years, and this institutional reform will focus on improving communication. Meanwhile, the latest economic forecast summary shows that Fed officials have raised their median forecast for the federal funds rate in 2026 from 3.4% in March to 3.8%. This means that Fed officials expect rate hikes this year. The dot plot shows that out of 19 officials, only 18 submitted dot plot forecasts. Among the 18 officials, one believes that there should be a cumulative 75 basis point rate hike in 2026, five believe there should be a cumulative 50 basis point hike, three believe there should be a cumulative 25 basis point hike, eight believe rates should remain unchanged, and one believes there should be a cumulative 25 basis point rate cut. After Powell signaled that the Fed will continue to focus on fighting inflation, market sentiment clearly turned hawkish. Traders sold short-term U.S. Treasuries, pushing up yields on certain maturities. The two-year U.S. Treasury yield, which is most sensitive to changes in monetary policy, rose by 17 basis points on Wednesday, marking the largest single-day increase since March. Currently, interest rate swap traders have fully priced in a 25 basis point rate hike by the Fed in October. Prior to this week's Fed meeting, the market had expected this rate hike to occur in March 2027. However, Allianz's chief economist Adrian stated that financial markets fundamentally misinterpreted the Fed's decision to keep rates unchanged, believing it was too hawkish. In an interview, the economist stated that investors are using outdated strategies to deal with a central bank that is currently undergoing a major transformation. Adrian emphasized that the current leadership of the Fed is focused on institutional reform to achieve better policy outcomes. Adrian believes that the market's overreaction stems from a partial focus on the economic forecast summary, which he called "suspicious." He believes that if officials were to convene a week later and fully consider a 20% drop in oil prices, the distribution of rate forecasts would be significantly different, with more members leaning towards keeping rates unchanged rather than predicting rate hikes. However, Adrian acknowledged that inflation remains a persistent challenge, having been above the Fed's target level for 63 consecutive months. He pointed out that the Fed chairman is clearly frustrated with taking over an institution that has allowed inflation to exceed the target for over five years, but he remains committed to restoring price stability.