Higher interest rates are likely to reduce 0.5% of U.S. economic growth and force unprofitable publicly traded companies to start cutting their shares. worker, they wrote.
Short-term Treasury yields hovered around 17-year highs as U.S. job growth continued to suggest economic strength.
The strength of the labor market and consumer spending in the Federal Reserve’s aggressive rate hike cycle will likely mean that the neutral rate – the level at which interest rates begin to weigh on the economy – will be higher than last cycle, the company said.
As a result, the Federal Reserve’s current benchmark rate is not high enough to trigger a recession, so the central bank is less likely to feel the need to cut credit costs, analysts wrote. at Goldman Sachs.
“Markets are less confident that falling inflation will be enough to trigger short-term cuts,” the company wrote.
A prolonged period of high rates will weigh heavily on 50% of publicly traded companies being unprofitable by 2022, the company warned.
A wave of companies cutting costs, by cutting spending or reducing staff, could drag down payroll growth by about 20,000 jobs a month and shave 0.2% from GDP, Goldman Sachs estimates.
Rising interest rates could also raise the debt-to-GDP ratio from 96% to 123% over the next decade, according to the company. However, he doesn’t believe the debt hike will prompt a fiscal deal in Washington in the short term.
“We believe that concerns about debt sustainability are unlikely to lead to an agreement on deficit reduction in the near term due to congressional gridlock, a lack of political attention on deficit reduction, and the upcoming elections in 2024.” wrote Goldman Sachs.
“As none of the likely presidential candidates have focused on reducing the deficit, it is unclear what will change after the election,” he added.