Goldman: More Aggressive Rate Expectations Imply Meaningful Growth Drag

Goldman Sachs' revised expectation for 75bp Fed hikes Wednesday and in July has been widely reported, but here are their other revised views:

• 50bp hike in September and 25bp hikes in Nov and Dec to 3.25-3.50%. That's the the same terminal rate that Goldman had previously seen, though it comes a little earlier: they had previously seen 50bps in Jun, Jul, Sep, and Nov, with a final 2 25bp raises, in Dec and Q1 2023.
• Goldman's terminal rate expectation is below market pricing because "the additional tightening of financial conditions on Friday and Monday, driven by a rise in terminal rate expectations to about 4%, would imply a meaningful further drag on growth that goes somewhat beyond what we think policymakers intend at this point or should be targeting to have the best chance of bringing down inflation without a recession."
• New Fed Dot Plot: Median 2022 at 3.4%% at end-2022 (matching GS's actual rate forecast); 2023 at 3.9%; 2024 at 3.6%. Previously they saw 2.9%, 3.6%, 3.4%.