Stock US economy retail
The Fed’s rate-hike path has been a top focus for economists and investors this year as the central bank seeks to cool stubbornly high inflation. Image Credit: AP

New York: Goldman Sachs Group cut its US economic growth estimates for 2023 after recently boosting its predictions for Federal Reserve interest rate hikes.

US gross domestic product will increase 1.1 per cent in 2023, economists including Jan Hatzius wrote in a note Friday, compared with a forecast of 1.5 per cent previously. The projection for 2022 was left unchanged at 0 per cent.

Goldman raised its federal funds rate forecast by 75 basis points over the last two weeks for a terminal rate forecast of 4 per cent to 4.25 per cent 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,” the economists said. “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.”

Goldman also raised forecasts for the unemployment rate to reflect the lower growth, saying it will be about 3.7 per cent by end-2022, compared with a call for 3.6 per cent previously. It will rise to 4.1 per cent by the end of 2023 versus 3.8 per cent previously, and to 4.2 per cent by end-2024 compared with a prior estimate of 4 per cent.