Goldman Sachs Group Inc. lowered their growth estimates for the U.S. economy in 2023. The financial firm also recently predicted an increase in Federal Reserve (Fed) interest rates, which has finally been confirmed. Goldman raised their federal funds rate forecast by 75 basis points. That is, a new terminal rate estimate ranging from 4% to 4.25% by the end of 2022.
The country's gross domestic product (GDP) will increase by only 1.1% in 2023 compared to the previous estimate of 1.5% growth. The projection for 2022 remained unchanged at 0%.
Fed hikes in the next two months
The Fed's rate hike path has been a major focus among economists and investors this year since the central bank seeks to lower inflation from historically high levels.
This higher rate path combined with the recent tightening of financial conditions implies a somewhat worse outlook for growth and employment next year. Our growth forecast is slightly below consensus and implies a below-potential growth trajectory that we believe is necessary to cool wage and price inflation.
The financial firm also raised unemployment rate forecasts to reflect slower growth. They state that unemployment will be around 3.7% by the end of 2022, compared to the 3.6% previously forecasted. Unemployment will rise to 4.1% by the end of 2023, up from the 3.8% previously forecasted, and 4.2% by the end of 2024, compared to an earlier estimate of 4%.
