‘Biggest negative impact is already behind us,’ Hatzius says
Economists worried about a recession next year often cite the lagged effect of the Federal Reserve’s 11 increases in interest rates over the past 20 months. But Goldman Sachs’s chief economist, Jan Hatzius, is not concerned.
The question of the lagged effects of prior hikes is one of the clearest dividing lines among Fed officials. In general terms, Fed officials who think the central bank has raised interest rates enough believe that the economy is still going to be hit by these “lagged” effects. In a new outlook, Goldman is in the latter camp. Economists at the investment bank estimate that most of the drag on GDP growth from the Fed’s hiking cycle occurred in 2022 and early 2023.
What do some economists get wrong? Goldman said that the lags from tightening to GDP growth are shorter than widely believed because the clock starts when markets anticipate tightening.
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