Written by Sinad Karahimetovic
The chief economist at investment bank Goldman Sachs has updated the bank’s GDP and unemployment forecasts in 2023 to reflect the trajectory of higher rates.
The series of moves came after the bank’s strategists raised the Fed’s funds rate forecast by 75 basis points over the past two weeks. Goldman Sachs now expects the Fed to rise by 75 basis points in September, 50 basis points in November, and 50 basis points in December to reach its final interest rate forecast of 4-4.25% by the end of 2022.
“This trajectory of higher rates combined with the recent tightening in financial conditions suggests a somewhat worse outlook for growth and employment next year,” he said in a note to clients.
The new economic outlook has left Goldman less than the consensus and calls for a less than likely growth path that we believe is necessary to cool wage and price inflation.
“We still expect +1.1%/+1.0% GDP growth in Q3 2022/4Q and 0% GDP growth in 2022 on a Q4/4Q basis, but now we’re expecting GDP growth by +0.75% / + 1.0% / + 1.25% / + 1.25% in the first quarter of 2023 to the fourth quarter (versus +1.25% / +1.5% / +1.5% / + 1.75% previously) and +1.1% growth in 2023 on a Q4/4Q basis (versus +1.5% previously),” the economist explained.
The unemployment rate forecast rises to 3.7% from the previous 3.6% by the end of 2022, and to 4.1% from 3.8% by the end of 2023. As far as the end of 2024 is concerned, Goldman now sees the rate as 4.2% from 4% previously.