By Senad Karaahmetovic

The chief economist of investment bank Goldman Sachs, updated the bank’s GDP and unemployment forecasts in 2023 to reflect a higher rates path.

A series of moves come after the bank’s strategists raised the Fed Funds rate forecast by 75bp over the last two weeks. Goldman Sachs now expects that the Fed will hike by 75bp in September, 50bp in November, and 50bp in December to reach the 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,” he said in a client note.

The new economic projections have Goldman below consensus and call for a below-potential growth trajectory that we believe is necessary to cool wage and price inflation.

“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),” the economist explained.

The unemployment rate forecast goes to 3.7% from the prior 3.6% by the end of 2022, and to 4.1% from 3.8% by the end of 2023. As far as the end of 2024 is concerned, Goldman now sees the rate reaching 4.2% from 4% previously.