The Federal Reserve has raised interest rates for the first time in three years, but the hawkish signal from the dot plot has caught the market off guard. A Goldman Sachs trader's rapid assessment suggests this is far from a "dovish hike."

At the September meeting, the Fed unanimously approved a 25-basis-point increase to the benchmark rate, bringing it to the 3.75%-4.00% range, marking the first hike since July 2023.

The会后 released Summary of Economic Projections (SEP) indicated a median forecast of one additional rate hike within 2026 and no cuts in 2027, a stance clearly firmer than market expectations.

On September 16, Giulio Esposito from Goldman Sachs' fixed income and equity desks noted in a post-meeting commentary that the outcome was more hawkish than the firm had anticipated. Goldman Sachs had originally expected a "dovish hike," meaning a rate increase accompanied by signals of limited further action.

Goldman Sachs believes the market should now focus on a key variable: if inflation trends fail to show a substantial shift in the fourth quarter, a more aggressive front-loaded hiking path could replace the current baseline expectation of just one more increase.

Dot plot steeper than expected, with "two hikes" becoming the mainstream view

The dot plot results clearly exceeded both market and Goldman Sachs' own projections. Among the 18 officials, 12 anticipate two total hikes in 2026 (including this one), four see three hikes, and only two maintain a more moderate view of a single increase for the year.

Goldman Sachs' pre-meeting baseline scenario was a 10-to-8 majority favoring just one hike, a notable divergence from the actual outcome. The median rate path now implies rates at 4.00%-4.25% by end-2026, unchanged through 2027, easing to 3.75%-4.00% in 2028, and further down to 3.50%-3.75% by 2029.

The median neutral rate estimate was nudged up slightly, from 3.06% to 3.25%. Notably, Waller again did not submit a dot plot projection, consistent with his approach in June.

In line with the hawkish dot plot tone, the SEP also revised up economic fundamentals: overall PCE inflation for 2026 was raised 0.1 percentage point to 3.7%; core PCE inflation for 2026 was lifted 0.1 point to 3.4%; GDP growth for 2026 went up 0.1 point to 2.3% and for 2027 by 0.1 point to 2.4%; unemployment for 2026 was cut 0.2 point to 4.1%, with the same downward adjustment for 2027 to 4.1%.

The FOMC statement kept its language brief without clear forward guidance. It added that "domestic spending has shown resilience" and characterized the hike as "supporting a more timely return to the Committee's 2% target."

Waller's hawkish rhetoric signals lower inflation tolerance

Waller's press conference remarks were the market's primary focus. He explicitly described current financial conditions as "far from restrictive" and framed the hike as merely "removing a dose of accommodation," implying ample room for further tightening.

His language on inflation was notably tough, stating that "inflation is too high and has persisted for too long." He noted the current PCE projection of 3.7%, with too many components still above 3%, and expressed concern over rising commodity prices, viewing inflation risks as tilted to the upside.

Esposito's commentary highlighted a warning signal: an inherent contradiction between Waller's hawkish stance and the SEP's projection that inflation does not return to 2% until 2029. This divergence suggests that if the fourth-quarter inflation trend does not shift materially, the Fed could move toward a more aggressive front-loaded hiking path than the current dot plot indicates, rather than concluding with just one additional hike.

The full research report from Goldman Sachs is expected to be published separately the following day.