Goldman Sachs outlook for the US economy and Fed policy

For the Federal Open Market Committee, Goldman Sachs see what they describe as a “seamless” transition from tapering to rate hikes

  • They expect the first rate hike ‘liftoff’ in
    July 2022

On inflation GS forecast core PCE inflation to rise further in the US winter, but eventually falling to low 2% levels 

  • “as a transitory inflation boost from
    durable goods becomes a transitory deflationary drag in late 2022 and
    2023”

On economic recovery GS expect the slowing due to the Delta wave has passed, growth is accelerating again, with a ways to go for the service sector. But:

  • “declining fiscal support will be a major growth headwind
    through the end of 2022
  • “as near-term boosts from
    reopening, pent-up savings, and inventory restocking subside, growth
    should decelerate to potential by late 2022”

On the jobs market, GS are looking for the jobless rate to drop to its 3.5% pre-pandemic low in 2022. GS still see participation is likely to remain below its pre-pandemic
trend.

  • “strong
    labor demand and reduced labor supply should keep wage growth just
    above 4%, stronger than last cycle but compatible with the Fed’s
    inflation goal”

Goldman Sachs graphic on the timeline for tapering and hikes ahead:

Federal Open Market Committee Goldman Sachs tapering to rate hikes

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