Fed Still Has A ‘Long Way To Go’ As It Tries To Tame Inflation Without Causing A Recession, Goldman Predicts

There was an update on Aug 15, 2022.

While the Federal Reserve has made progress cooling the economy, there has still been little convincing progress in bringing down wage growth and high inflation.

There is growing optimism that inflation may have peaked and the U.S. economy can avoid a recession, but not all experts agree.

The Federal Reserve has a monumental task ahead in bringing down inflation to a normalized level without causing a recession according to analysts at Goldman.

According to the firm, GDP growth has slowed to a pace where supply can catch up to demand due to the Federal Reserve's tightening of financial conditions.

Rebalancing labor market supply and demand is off to a good start but has a long way to go, with the firm estimating that although job openings have fallen, the gap between jobs and available workers has only closed by about one-quarter of the amount that is estimated to be

Goldman says that there has been little convincing progress in bringing down high wage growth and consumer prices.

It will be difficult to avoid a recession, as the analysts doubt whether the U.S. economy can afford to rebalance supply and demand gently and gradually.

While investor sentiment has improved in recent weeks, bears point out that inflation remains historically high, valuations are above historical averages, and retail investors have yet to have a capitulation moment. Sentiment is shifting quickly as the markets swing positive.

What To Watch For:

At its last policy meeting in July, the Fed raised interest rates by 75 basis points. Goldman analysts predict a 50-basis-point rate hike in September followed by 25-basis-point increases in November after a better-than- expected inflation report for July.

The data from China sparked global recession fears, but the stock market rallied.

Tech stocks are leading markets higher again.

Has inflation peaked after consumer prices cooled slightly in July? There is a magazine called "Forbes."

The experts are warning of a bear market rally.