Goldman Sachs trader's quick comment on Waller's statement: If "Q4 inflation trend remains unchanged," then it's more than just one rate hike.

The Federal Reserve has resumed interest rate hikes after three years, but the hawkish signals from the dot plot caught the market off guard. Goldman Sachs traders commented bluntly that this move was far from a "dovish hike."

As cited by Wallstreetcn, the Federal Reserve's September meeting was unanimously approved, raising the benchmark interest rate by 25 basis points to a range of 3.75%-4.00%, marking the first hike since July 2023.

The Summary of Economic Projections (SEP) released after the meeting shows that the median forecast of the committee suggests there will be another rate hike in 2026, with no rate cuts in 2027, a stance clearly more hawkish than market expectations.

According to Market Chasing Desk, on September 16, Giulio Esposito of Goldman Sachs' Fixed Income and Equities division pointed out in a post-meeting comment that the outcome was more hawkish than Goldman Sachs had expected. Goldman Sachs initially anticipated this to be a "dovish hike," meaning a rate hike while signaling limited room for further increases.

Goldman Sachs believes the market's focus next should be that if there is no substantial change in inflation trends in the fourth quarter, a more aggressive path of preemptive rate hikes could replace the current baseline expectation of "one more hike."

The result of this dot plot was significantly beyond both market and Goldman Sachs’ own expectations.

Among the 18 committee members, 12 projected a total of two rate hikes for 2026 (including this one), 4 expected three hikes, while only 2 maintained the relatively moderate position of "just one hike for the full year."

Goldman Sachs’ baseline scenario prior to the meeting was a 10 to 8 majority favoring "only one more hike," so the actual result differed significantly.

Looking at the median rate path, the end-of-2026 rate is expected to fall between 4.00%-4.25%, remain unchanged in 2027, drop back to 3.75%-4.00% in 2028, and further to 3.50%-3.75% by 2029.

The median neutral rate was slightly revised upward, from 3.06% to 3.25%. Notably, Waller, as in the June meeting, again did not submit a dot plot forecast.

Echoing the hawkish tone of the dot plot, this SEP also revised economic fundamentals upward:

• Overall PCE inflation (2026): Up by 0.1 percentage points to 3.7%;
• Core PCE inflation (2026): Up by 0.1 percentage points to 3.4%;
• GDP growth (2026): Up by 0.1 percentage points to 2.3%; (2027): Up by 0.1 percentage points to 2.4%;
• Unemployment rate (2026): Down by 0.2 percentage points to 4.1%; (2027): Also down by 0.2 percentage points to 4.1%.

As cited by Wallstreetcn, the FOMC statement remained concise in wording, without clear forward guidance. It newly included the phrase "domestic spending remains resilient," and characterized this rate hike as "supporting a more timely return to the committee's 2% goal."

At the press conference, Waller's remarks became the main focus of market attention.

He explicitly described current financial conditions as "far from restrictive," and characterized this rate hike as merely "removing a dose of easing," suggesting that there remains ample room for further monetary tightening.

His language on inflation was especially tough, stating bluntly that "inflation is too high and has lasted too long." He pointed out that current PCE is projected at 3.7%, with too many components above 3%, and also expressed concern over rising commodity prices, seeing overall inflation risks as tilted to the upside.

In his commentary, Esposito specifically flagged a noteworthy warning sign: there is a clear internal contradiction between Waller’s hawkish rhetoric and the SEP showing inflation not returning to 2% until 2029.

This divergence means that if there is no meaningful shift in inflation trends in the fourth quarter, the Federal Reserve may move towards a more aggressive preemptive hiking path than currently shown in the dot plot, rather than just one additional hike and a pause thereafter.

The full report from Goldman Sachs Research is expected to be released the following day.