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Goldman Sachs: Expect Another Interest Rate Hike—But Not a Recession

From the “heard at Goldman Sachs” newsletter:

2022 was quite a year for the economy and the markets. If you’re wondering where all of it may be headed next, you’re in good company. One big question remains: Can overheated inflation be cooled without a recession? This is how our colleagues in Goldman Sachs Asset Management’s Strategic Advisory Solutions and Global Investment Research see it.

Slowing, not stopping, our roll?

Some investors and even experts may be underestimating the resilience of the US economy. But our Research colleagues believe it’s feasible for the US to cool its overheated inflation without a recession. A long enough period of slower, but still positive, GDP growth may gradually help balance labor demand and supply and get control over prices. But we have much further to go down this challenging road in 2023.

The path could still be rocky…

We’re likely to see inflation slowly cooling in 2023, especially in the important areas of housing and wages. Supply chains are flowing better, which will help, and they could improve even more if China works out a more flexible COVID-19 policy. But if wages keep growing quickly and consumers start to think high inflation is here to stay (i.e., long-term inflation expectations rise), the Fed may have to work harder for longer to get prices under control. Our Research colleagues expect the Fed to hike the Fed funds rate target up to 5-5.25%, with no cuts in 2023.

…With a boulder or two.

The supply challenges that contributed to this inflationary period aren’t easy to solve. Many are structural and long-term, based on years of underinvestment, especially for physical commodities like oil, gas, and certain metals. Commodity supply may also continue to be held back by higher interest rates, recessionary worries, and the strength of the US dollar – which may persist in the face of slow global growth or relax as global growth and inflation issues improve.

New year, new economy?

Maybe. This economy has a lot of moving parts. With seemingly conflicting macro data coming in week to week, consistent trends can be hard to spot. The path of the economy may or may not follow what we’ve seen historically. So, all eyes continue to be on the Fed and forthcoming inflation figures.

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Drew Limsky

Drew Limsky

Editor-in-Chief

BIOGRAPHY

Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.