By Senad Karaahmetovic
Goldman Sachs strategists now expect the fed funds rate to peak at 4.75-5%. The latest forecast includes a new 25bp hike to be delivered in March 2023. Overall, Goldman calls for a 75bp hike in November, 50bp in December, and two moves by 25bp in February and March.
The widely expected 75bp rate hike this month should raise the fed funds rate to 3.75-4%. Goldman strategists also expect Fed Chair Jerome Powell to hint that the FOMC will slow the pace to 50bp in December.
They highlighted three reasons why the Fed will likely extend the hiking cycle past February.
"First, inflation is likely to remain uncomfortably high for a while, which could make continuing to hike in small increments the path of least resistance. Second, more rate hikes might be needed to keep the economy on a below-potential growth path now that the fiscal tightening has mostly run its course and real income is growing again. Third, the FOMC might need to do more if a future pivot causes a premature easing of financial conditions."
In this kind of environment, Goldman's top equity strategists urged clients to own stocks with high cash return yield and growth, given the attractive yield offered by cash today.