Goldman Sachs cut S&P 500 target by 16% as Fed steps up to fight inflation

Goldman Sachs cut its year-end forecast for the Standard & Poor’s 500 Index as the Federal Reserve shows no signs of slowing its battle to crush inflation.

In an analyst note late Thursday, Goldman strategists trimmed their 2022 target for the Standard & Poor’s Index by 16% to 3,600 points. This is down from their previous estimate of 4,300 points.

The benchmark index closed in the latest trading at 3,757 points and fell to 3,695 during morning trading on Friday.

“Based on our clients’ discussions, the majority of equity investors have taken the view that a hard landing scenario is inevitable and their focus is on the timing, size and duration of a potential downturn and the investment strategies for these forecasts,” analysts by David Kostin wrote.

Billionaire David Rubinstein warns inflation will be ‘hard’ for the fund to reduce

People walk past the Goldman Sachs building in Lower Manhattan on January 18, 2022 in New York City. ((Photo by Spencer Platt/Getty Images)/Getty Images)

Fed policymakers have already approved five consecutive rate hikes this year, including three 75 basis point increases in June, July and September.

In addition to the surge in interest rates, Federal Reserve officials have laid out a solid path of rate hikes for the remainder of the year. New economic forecasts released after the two-day meeting show that policy makers expect interest rates to reach 4.4% by the end of the year, indicating another three-quarter percentage point increase on the table.

Federal Reserve Chairman Jerome Powell

US Federal Reserve Chairman Jerome Powell attends a press conference following the Federal Open Market Committee (FOMC) meeting on September 21, 2022 in Washington, DC. (Photo by Chen Mengtong/China News Service via Getty Images/Getty Images)

“We have to put inflation behind us,” Chairman Jerome Powell said during a press conference. “I wish there was a painless way to do it. There isn’t.”

Kostin noted that inflation – which has proven to be more stable than expected – is unlikely to show clear evidence of a cooling in the near term, forcing the Fed to raise interest rates even higher.

Fed Powell ditches promise of ‘soft landing’ amid inflation battle

“Most portfolio managers believe that in order to control inflation, the Fed will have to raise interest rates enough that it triggers a recession in the US at some point during 2023,” he said.

Grocery store swell

Shoppers walk through the milk and cream section of a supermarket in Montebello, California, on August 23, 2022. (Photo by FREDERIC J. BROWN/AFP via Getty Images/Getty Images)

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A separate Goldman analyst note from Jan Hatzius shows that the bank’s economists believe the federal funds rate will reach the target range of 4.5% to 4.75% by early 2023. This includes a 75 basis point rate hike in November, and 50 basis point in December and 25 basis points in February.

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