Goldman Sachs expected the Fed would not hike rates today. That forecast didn’t come true. But the Wall Street bank now believes the Fed will have a difficult path ahead to keep both the economy and the banking sector healthy.
“Despite the Fed pressing ahead with a [quarter-point] rate hike today, we see considerable uncertainty in the path ahead and would downplay the significance of updated economic … projections in such a fast-moving environment,” said Ashish Shah, Goldman’s chief investment officer of the company’s public investing business.
Shah said Goldman believes the Fed will be forced to make decisions about rates and other policies based on both the banking sector and data about the economy.
“Concerns over capital constraints can fast change the economic outlook,” Shah noted. Although Goldman believes more rate cuts could come in the future, it predicts the Fed will pause for a bit. The Fed, similarly, predicted Wednesday that rates will be exactly the same at the end of the year (around 5%) as they are now.
“It is difficult to pinpoint where and when further vulnerabilities may unfold, but we think areas that benefited the most from low rates and low inflation may be the most exposed,” Shah said.
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