Goldman Lowers Expectations of September U.S. Rate Hike

Goldman Sachs has reduced its expectation that the Federal Reserve will raise interest rates at its September meeting, citing weaker-than-expected economic growth and the lack of clear signals from a senior Fed official on Tuesday.

Goldman now views the Fed as having a 40 percent likelihood of raising interest rates this month, down from 55 percent on Friday, economists at the bank said in a note sent late on Tuesday.

The revision came after data on Tuesday showed that the U.S. economy's service sector expanded in August but at a slower pace than in July, and the fall from the previous month was the largest since the 2008 financial crisis.

"While this is just one indicator, the surprise was meaningful, and there may have been some Fed officials feeling lukewarm on a September hike to begin with. In these circumstances, one large surprise could carry a lot of weight," Goldman said.

San Francisco Fed President John Williams also gave no new clues that a rate hike is likely this month when he spoke on Tuesday, Goldman said.

Goldman had raised its estimate of a September rate hike on Friday after nonfarm payrolls rose by 151,00 jobs in August, saying that employment growth was above the pace Fed officials typically consider sufficient to hold the unemployment rate steady over time.

Goldman now sees a 70 percent chance that the U.S. central bank will raise rates at least once this year, down from 80 percent.

(Editing by Frances Kerry)