It took one inflation report to make one of Wall Street’s most closely watched forecasters change its mind. Goldman Sachs no longer believes December’s rate hike will close out the Fed’s tightening cycle, and the bank now has company in rewriting its outlook.

Analysts across Wall Street reacted quickly after a third straight month of bad inflation news, with some now openly questioning the Fed’s recent choices. The debate is no longer about whether rates rise next month, but how far the Fed will have to go after that.

Why Goldman Sachs now sees a third hike in March

Goldman’s timing rests on a specific view of how prices will behave over the winter. Chief U.S. economist David Mericle expects inflation to cool through the end of the year before fresh price pressures at the start of 2027 push it higher again, which is why he favors March over January for the next move, Reuters reported.

Also read: Goldman Sachs has a new warning for the housing market for 2027

What worried Mericle most was how broad the increases were. He said that the October report showed upside surprises across several categories that the energy shock from the Iran war cannot fully explain. He still sees inflation meaningfully lower by the end of 2027, but only if the Fed takes a tougher line first.

The numbers behind that call were hard to ignore. Consumer prices rose 0.4% in October, ahead of the 0.3% economists expected, while core prices climbed 0.3% against a forecast of 0.2%, according to the US Bureau of Labor Statistics. Food, rent and medical care all moved higher during the month.

Goldman’s list of culprits closely aligns with Vanguard’s. Vanguard senior U.S. economist Josh Hirt traced the pressure to tariffs, energy prices and demand tied to the AI buildout, and the firm expected one more hike before the end of 2026, with the Fed holding steady in 2027.

Rival banks see an even faster path than Goldman

Bank of America is leaning closer to Deutsche Bank’s timetable than to Goldman’s. Its analysts kept their call for a quarter-point move in December, but warned that the Fed is falling behind on inflation and flagged a rising risk that the next hike comes in January rather than March. They also said the October hold is starting to look like a policy mistake.

A bigger December move is also getting a closer look. BofA Global Research, Citi and Standard Chartered said recent data and Waller’s comments have opened the door to a half-point hike, though they noted the evidence is not yet strong enough to firmly back it, as reported by Reuters. Standard Chartered economists led by Steve Englander said the case is stronger than they had expected, but still not definitive.

PGIM had already gone further than most. Its midyear outlook called for precautionary hikes against inflation shocks, and by the end of October, its team saw at least two more quarter-point increases ahead.

Not everyone was on that page before the data hit. J.P. Morgan expected just one more hike, most likely in December. Chief U.S. economist Michael Feroli argued that inflation still appeared to be driven by supply shocks, as reported by J.P. Morgan. Goldman held a similar end-of-cycle view until this week, underscoring how quickly the October numbers changed the conversation.

Goldman Sachs no longer believes December’s rate hike will close out the Fed’s tightening cycle.

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Fed hawks are backing up Goldman’s new call

Waller set the tone just hours before the data landed. He said the Fed should consider a half-point move in December if inflation came in hot, and that going smaller would risk its credibility. October’s report then landed above forecasts, and suddenly his warning had more weight.

Dallas Fed President Lorie Logan went a step further. She said the committee needs at least two more quarter-point increases and that it is unacceptable for inflation not to be heading back to the Fed’s 2% target. That path lines up neatly with the December and March hikes Goldman now expects.

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The AI boom is part of that discussion too. Richmond Fed President Thomas Barkin said the surge in AI infrastructure spending is adding to near-term inflation by fueling strong demand, while Chicago Fed President Austan Goolsbee urged officials to confront the risk of overheating, TheStreet reported. AI-related investment was one of the inflation drivers Goldman highlighted as well.

Bond traders reacted quickly. The two-year Treasury yield, which closely tracks expectations for Fed policy, jumped sharply after the release. Higher long-term yields feed directly into mortgage and car loan rates.

What Goldman’s new path means for borrowers

The next test for Goldman’s call comes before the Fed meets on December 8 and December 9. October’s CPI was the last consumer price report policymakers will see before then, though they will still get the personal consumption expenditures index, the Fed’s preferred gauge, later this month.

For households, Goldman’s pushback on its rate-cut timeline means cheaper borrowing isn’t arriving anytime soon. The October numbers offered little comfort to anyone already stretched by high prices. A longer tightening cycle keeps loan rates up well into next year.

Credit card rates tend to move closely with the Fed, so each additional hike increases the cost of carrying a balance. Savers sit on the other side of that trade, earning more on high-yield accounts and CDs for as long as rates stay up.

Related: Fed rate call leaves stock investors watching December closely