Goldman cuts S&P 500's 2022 outlook as Fed hikes pace

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Goldman cuts S&P 500's 2022 outlook as Fed hikes pace

Goldman Sachs slashed its year-end outlook for the S&P 500 as the Federal ReserveFederal Reserve shows no signs of slowing down its fight to crush inflation.

In an analyst note late Thursday, Goldman strategists trimmed their 2022 target for the S&P by 16% to 3,600 points. It was down from their previous estimate of 4,300 points.

The benchmark index was last closed at 3,757 points and dropped to 3,695 during Friday morning trading.

Five straight rate hikes this year have been approved by the Fed, including three 75 basis-point increases in June, July and September.

In addition to the large rate hike, Fed officials laid out an aggressive path of rate increases for the rest of the year. New economic projections released after the two-day meeting show that policymakers expect interest rates to hit 4.4% by the end of the year, suggesting that another three-quarter percentage point increase is on the table.

Chairman Jerome Powell said we have to get inflation behind us. I wish there was a painless way to do that. Kostin said that inflation that has proved more persistent than expected is unlikely to show evidence of cooling off in the near term, forcing the Fed to raise rates even higher.

He said that most portfolio managers believe that the Fed will have to hike rates so high that it will cause a U.S. recession during 2023, because of the fact that most portfolio managers believe that in order to corral inflation.

A Goldman analyst note from Jan Hatzius shows that the bank's economists think the federal funds rate will hit a target range of 4.5% to 4.75% by early 2023. That includes rate hikes of 75 basis points in November, 50 basis points in December and 25 basis points in February.