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breaking news Goldman Sachs on lack of trust in the Fed and what will happen if “something goes wrong”


Via a client note from Goldman Sachs economists following the Federal Open Market Committee (FOMC) interest rate hike and higher point chart revisions.

(If you missed the mid-week news:

)

Goldman Sachs:

  • In our view, if rate hikes solve the inflation problem without a recession, the FOMC will most likely wait for something to go wrong to cut rather than cut just to return to neutral.
  • the Fed is not confident enough in its neutral rate estimate of 2.5% to cut rates

The GS rate forecast is expected to push the fed funds rate to 4.6% by the end of the year:

  • The Federal Open Market Committee (FOMC) will raise rates by 75 basis points at its November meeting
  • a further increase of 50 basis points in December

GS by 2023, the trajectory of the funds rate in 2023 will depend on two questions:

1. how fast growth, hiring and inflation are slowing. While there are risks both ways, we see more risks that a higher peak rate is needed to reverse overheating than that the Fed halts sooner.

2. whether FOMC participants will really be happy with a high enough funds rate and willing to slow or stop tightening while inflation is still uncomfortably high

Remaining 2022 meetings:


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