Over the past 17 years, short-term Treasury yields have reached highs, reflecting the perceived strength in the U.S. economy, supported by continued job growth in the country.
The team of strategists Goldman Sachs has projected that interest rates high levels maintained for an extended period could subtract a 0.5% to US economic growth. This scenario also raises the possibility that companies unprofitable companies listed on the stock market are forced to initiate cuts in their workforceas indicated in a note.
Short-term Treasury yields have hovered around 17-year highs, as job growth in the United States continues to suggest strength in the economy.
Goldman Sachs underlines that the robustness of the labor market and consumer spending in the face of this aggressive cycle of Federal Reserve rate hikes is likely to establishe a higher neutral rate compared to previous cycles. This suggests that the Federal Reserve’s current benchmark rate does not exert enough pressure to induce a recession, decreasing the probability that the central bank will reduce the cost of creditaccording to the firm’s analysts.
Furthermore, strategists observe that markets have lost confidencea when a drop in inflation is enough to drive short-term cuts. They warn that a prolonged period of high rates could strongly impact around 50% of publicly traded companies that They did not make profits in 2022.
Interest rates: the impact on employment
This situation could trigger a wave of companies seeking to reduce costs by reducing spending or reducing staffwhich in turn would affect payroll growth, cutting around 20,000 jobs per month and reducing GDP by 0.2%, according to Goldman Sachs estimates.
Furthermore, rising interest rates could raise the debt/GDP ratio from 96% to 123% in the next decadealthough the firm does not foresee that this increase in debt will cause a fiscal agreement in Washington in the short term.
Goldman Sachs points out that the lack of political attention to deficit reduction, Congressional gridlock and the upcoming 2024 elections make it unlikely that concerns about debt sustainability will lead to a deficit reduction agreement in the short term.
Source: Ambito
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