Wall Street Now Sees Fed Rate Hikes Stretching Into 2027 as Goolsbee Calls Inflation 'Borderline Disturbing'

Wall Street's economists spent the Veterans Day holiday redrawing their maps for the Federal Reserve, and nearly every new route runs through higher rates for longer. Goldman Sachs now expects the central bank to keep raising its benchmark rate into March 2027 and has pushed its forecast for the first rate cut back to December 2027, Reuters reported. The change came as Chicago Fed President Austan Goolsbee described October's inflation numbers as "borderline disturbing".

For families with a mortgage, a car loan or a credit card balance, the takeaway is plain: relief on borrowing costs is moving further away.

Goldman still looks for a quarter-point increase at the Fed's December meeting and has now penciled in another one in March, which would lift the federal funds rate to a peak range of 4.25% to 4.5%, according to Investing.com. Goldman's chief U.S. economist, David Mericle, said October's broad price gains seemed to reflect "more than just the most direct effects of higher oil prices". Goldman said the added hike could come as early as January but favors March, expecting milder November and December price readings before the usual burst of increases early in a year.

Deutsche Bank has gone further and now expects quarter-point hikes in December, January and March, Reuters reported. BofA Global Research, Citi and Standard Chartered said Fed Governor Christopher Waller's recent comments had opened the door to a half-point move in December, though each said the data do not yet settle the question. Citi still expects a quarter point.

The Fed lifted its target range to 3.75% to 4.00% in September, its first increase in three years, and then held steady in October. Futures markets put the chance of another increase at the Dec. 8-9 meeting at about 90%, and the odds of a January hike above 64%, the Associated Press reported. Citing CME FedWatch, Reuters said the probability of a half-point move in December climbed to 13.5% after Tuesday's inflation report, up from roughly zero.

Goolsbee made his comments in a Tuesday interview with PBS NewsHour, Scotsman Guide reported. He said cost pressures from tariffs and the Iran war that were expected to fade by now have not, and that rising prices are weighing on the minds of businesses and nonprofits alike. He would not commit to the size of a December move, saying he did not want to tie the Fed's hands. His view will soon carry more weight: Goolsbee, a nonvoter this year, rotates into a voting seat on the Fed's rate-setting committee in January. Cleveland Fed President Beth Hammack has questioned whether a couple of small rate increases would do much to slow demand for AI data centers, according to the same report.

The AP reported that annual inflation reached 4% in October, up from 3.7% in September, and that rising prices are now turning up in goods with little connection to oil or data centers. Smartphone prices jumped 1.4% from September to October, the largest monthly increase on record, and television prices rose 3.3%. Fed Governor Michelle Bowman said "these pressures may be broadening," and Dallas Fed President Lorie Logan pointed to rising costs for doctor visits, child care, restaurant meals and hotel stays. Philadelphia Fed President Anna Paulson favors gradual increases, and Fed Chairman Kevin Warsh has declined to say whether more are coming.

Higher Fed rates ripple out to mortgages, credit cards and other loans, the AP noted. The average 30-year fixed mortgage rate stood at 6.98% in Zillow data cited by Yahoo Finance, up 5 basis points from the day before but 12 basis points lower than a week earlier. At that rate, a $400,000 loan carries a monthly principal-and-interest payment of $3,139. The Mortgage Bankers Association expects the 30-year rate to average 7.3% in the fourth quarter, and Fannie Mae projects 7.4%, Yahoo Finance reported.

Stock investors looked past the rate worries Wednesday. The S&P 500 rose about 1.3% to 7,619.38, the Nasdaq gained 1.6% to 25,466.19 and the Dow added 0.49% to 52,486.49, as a rebound in AI-related shares led the way, according to The Motley Fool. The bond market was closed for the holiday, and the 10-year Treasury yield had been closing in on 5% before the break. Bond trading resumes Thursday.

Inflation is often called a hidden tax, and it falls hardest on retirees living on fixed incomes and on young families stretching to cover groceries, rent and child care. That is why this stubborn bout matters far beyond Wall Street.

Mericle still expects inflation to be meaningfully lower by the end of 2027 as pressures from tariffs, energy and AI spending ease. In the meantime, Goldman expects most Fed officials to signal a third increase in the projections they release in December. The next test arrives at the Dec. 8-9 meeting, where officials will weigh whether a quarter point is enough or whether, as Waller has argued, so small a step would put the Fed's credibility at risk.