Goldman economists now expect the US economy to grow 0.5% in the first quarter and 1.5% in the second (from 1% and 2.5% previously).
For the year, Goldman expects the US economy to grow 1.75% (from 2% previously), although it warns that the likelihood of the US economy sliding into recession this year is d about 20% to 35%.
Rising inflation already appears to be undermining U.S. consumer sentiment, with sentiment falling to a decade low in February, according to the University of Michigan consumer sentiment survey.
According to Goldman economists, the combination of rising gasoline and food prices alone “will create an effective drag of 0.7 percentage points on real disposable income in 2022.”
And credit card data from Bank of America suggests that consumers, especially those on lower incomes, have already begun to cut spending on more discretionary items such as clothing and furniture to pay utility bills. higher gasoline.
Despite a more gloomy economic outlook, the US Federal Reserve is expected to raise interest rates by 25 basis points at its meeting this week.
In testimony before Congress this month, Fed Chairman Jerome Powell signaled that the U.S. central bank was ready to continue a “series” of interest rate hikes, starting in March, even though Russia’s invasion of Ukraine had led to very uncertain economic prospects. .
The Fed is clearly concerned that inflationary pressures are spreading throughout the economy, with a wider range of goods and services costing more.
Still, the Fed should err on the side of caution to avoid shaking up financial markets that are already reeling from the wild swings in commodity markets.