For the slow-moving that is. It’s been obvious for eight months in my view. Now Goldman has made it there, though it is still too bullish.
We have raised our fed funds rate forecast by 75bp over the last two weeks, and now expect that the FOMC will hike by 75bp in September, 50bp in November, and 50bp in December to reach our terminal rate forecast of 4-4.25% by the end of 2022. This higher rates path combined with recent tightening in financial conditions implies a somewhat worse outlook for growth and employment next year.
We are therefore lowering our GDP forecasts. We still forecast GDP growth of +1.1%/+1.0% in 2022Q3/Q4 and 0% GDP growth in 2022 on a Q4/Q4 basis, but now expect GDP growth of +0.75%/+1.0%/+1.25%/+1.25% in 2023Q1-Q4 (vs. +1.25%/+1.5%/+1.5%/+1.75% previously) and +1.1% growth in 2023 on a Q4/Q4 basis (vs. +1.5% previously). Following these changes, 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.