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‘Until Something Goes Wrong’: Goldman Sachs Warns Investors High Rates Are Here To Stay

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Even in the best case scenario where the Federal Reserve is able to combat inflation without causing a recession, it is unlikely to cut interest rates, Goldman Sachs analysts warned in a note, according to Business Insider.

The Federal Reserve has raised rates three times in the past four months, with Wednesday’s 0.75% increase bringing primary credit rates to 3.25%, one of the most aggressive increases since the 1980s. However, even in a so-called “soft landing” where a recession and layoffs are avoided, the Fed is unlikely to cut interest rates until “something goes wrong,” according to a Goldman Sachs note reported by Business Insider.

“In our view, if rate hikes solve the inflation problem without a recession, the [Fed] would most likely wait until something goes wrong to cut rather than cutting just for the sake of returning to neutral,” said a team of Goldman analysts in the note. The team predicts that the Federal Reserve will likely continue rate hikes through the fall, 0.75% in November and 0.5% in December, before re-evaluating in 2023 depending on two key factors.

Goldman Sachs says the stock market could fall another 26% if the Fed gets too aggressive with interest rate hikes.

— Watcher.Guru (@WatcherGuru) September 17, 2022

First is the rate at which inflation slows, second is whether the Fed will stop hikes if inflation remains high, according to Business Insider. Federal Reserve Chairman Jerome Powell has repeatedly said the Fed will maintain an aggressive policy stance to battle inflation “until the job is done,” and inflation starts to return to the Fed’s target of 2% annually.

Inflation is currently remaining stubbornly high, at 8.3% year-on-year in August as food and rent prices soared, surprising economists who anticipated inflation to fall to around 8.1%. President Joe Biden has downplayed inflation in several recent appearances, claiming that his administration’s efforts had helped families at the kitchen table despite grocery prices increasing at the highest rate in over 40 years.