Menu Our services in the selected location:
  • No services available for your region.
Select Location:
Remember my selection
Your browser is out of date.


July 5, 2022  |  5 Minute Read

John Tousley

Global Head of Market Strategy, Strategic Advisory Solutions

John Tousley


The current Federal Reserve (Fed) hiking cycle comes amid a historically tight labor market, an inflation overshoot, and an equity market drawdown, inviting recessionary concerns. While US growth may skew to the downside, our base case does not include a recession in the near future. We believe the Fed can engineer a soft landing—or a healthy growth deceleration without a US recession. In our view, private sector balances remain healthy, growth momentum trumps weak sentiment, and a rotation toward services spending will support consumption, all of which may provide the Fed room to maneuver through economic uncertainty. Even if a recession were to occur, we would enter such a period with unprecedented macro cushioning.


1. Healthy Private Sector Balances

Private sector balance sheets generally remain healthy across broad swaths of the economy, particularly within small businesses, large corporations, the banking system, and households. Across business sectors, strong consumer demand and high output prices have helped prop up financial surpluses even as fiscal support has wound down. As a result, the ability of businesses to finance current levels of investments has maintained near long-term averages. Similarly, the banking system has remained well-liquefied—regulatory capital ratios are at an all-time high and loan-to-deposit ratios are near record lows. Finally, US household net worth has benefited from a three trillion-dollar build-up of excess savings (Exhibit 1), creating substantial macro buffer against tightening financial conditions.



Exhibit 1: Household Net Worth Near All-Time Highs

US Household Net Worth (% of Disposable Personal Income) 


Household Net Worth Near All-Time Highs

Source: Goldman Sachs Global Investment Research. As of June 16, 2022. The economic and market forecasts presented herein are for informational purposes as of the date of this presentation. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of this document.



2. Growth Outlook Resilience

Declining business confidence and consumer sentiment have historically preceded economic downturns, and the reality of rising recession risk should not be minimized. Still, we think growth momentum trumps sentiment. With the odds in favor of still above-potential GDP growth this year, we believe Fed action will be met with substantial room to moderate aggregate demand, normalize labor demand, and ultimately lower inflation without inducing second-round economic effects. We expect businesses and consumers to offer additional buffers for the Fed to carefully tighten financial conditions. On business activity, Goldman Sachs Global Investment Research forecasts net increases for revenue (+1.1%) and capital expenditures (+1.3%) for the full year. On consumers, we believe that weak consumer sentiment may not spell weak consumption, as a drawdown in the personal savings rate should support current consumption levels.


3. A Goods-to-Services Rotation Boost

Consumers are the engine of the US economy, and we expect a resumption of in-person activity to drive a goods-to-services rotation with important implications. First, virus-sensitive sectors may see a spending rebound of +5% toward pre-pandemic trend (Exhibit 2), re-boosting consumption and GDP growth. Second, a rebound in services spending may help ease goods-induced pressure on supply chains and commodity prices, allowing imbalances to correct with time. Lastly, services normalization may also be met with more labor supply. Our expectation for another million workers to return to the labor force in the next year would support moderation of both wage growth and inflationary pressure.



Exhibit 2: A Reversion to the Trend

Real Goods Consumption and Real Services Consumption (% of 2022 Real GDP)


Real Goods Consumption and Real Services Consumption

Source: Goldman Sachs Global Investment Research. As of May 30, 2022.



To be sure, the path for the Fed to achieve a soft landing remains narrow. But, we believe these macro offsets will ease both the severity and duration of any economic contraction.

Related Insights

  • June 29, 2022 | GSAM Connect

    The Micro Footprints Of Macro Risks

    June 29, 2022 Household finance can provide differentiated micro-level perspectives into macro business cycles. In today’s accelerated monetary tightening cycle, the risks of equity selloff and a housing slowdown are top of mind. The timing of policy actions will be important for limiting the transmission of asset price weakness into credit risk, and the choices consumers make will help determine the path of the household credit cycle and the depth of any economic downturn that may result. Read More
  • June 22, 2022 | GSAM Connect

    Chinese Government Debt Demands A Decision From Active And Passive Investors Alike

    June 22, 2022 A truly epochal event is well underway in capital markets: the integration of China government bonds (CGB) into the investment mainstream. The financial liberalization efforts China has undergone are paying off, leading to rapidly increasing weights for CGBs in the key benchmark indices and accompanying inflows. Given the prominence of these bond benchmarks in many investors’ portfolios, passive and active investors alike will be expressing views on China bonds, intentionally or not. Read More
  • June 3, 2022 | GSAM Connect

    Debt Dynamics

    June 3, 2022 US national debt held by the public, now at over $23 trillion, nearly totals annual GDP for the first time since World War II and is projected to go even higher. With interest rates rising, the sustainability of US debt is top of mind again, especially after recent pandemic-era spending contributed nearly 30% to the overall balance. In our view, US debt will likely remain sustainable even against a slowing but still resilient US economy and tighter financial conditions. Still, the pace of debt accumulation remains a critical indicator to watch. Ultimately, we believe that US debt can stay elevated so long as the prevailing macro conditions do as well. Read More

Start the Conversation

Committed to providing you with the insights you need to build your practice.




An equity market drawdown is a period of falling equity prices.

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

Gross Domestic Product (GDP) is the value of finished goods and services produced within a country's borders over one year.

Virus-sensitive sectors are spending categories that have exhibited more sensitivity than other categories to viral outbreaks and include medical, recreation, and travel.

Risk Considerations and General Disclosures

All investments contain risk and may lose value. Equity investments are subject to market risk, which means that the value of the securities in which it invests may go up or down in response to the prospects of individual companies, particular sectors and/or general economic conditions.

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by Goldman Sachs Asset Management to buy, sell, or hold any security. Views and opinions are current as of June 24, 2022 and may be subject to change, they should not be construed as investment advice.

Individual portfolio management teams for Goldman Sachs Asset Management may have views and opinions and/or make investment decisions that, in certain instances, may not always be consistent with the views and opinions expressed herein.


This material is provided for informational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to provide updates or changes to these forecasts. Case studies and examples are for illustrative purposes only.

This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material has been prepared by Goldman Sachs Asset Management and is not financial research nor a product of Goldman Sachs Global Investment Research (GIR). It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and Goldman Sachs Asset Management has no obligation to provide any updates or changes. 

United Kingdom: In the United Kingdom, this material is a financial promotion and has been approved by Goldman Sachs Asset Management International, which is authorized and regulated in the United Kingdom by the Financial Conduct Authority.

European Economic Area (EEA): This financial promotion is provided by Goldman Sachs Bank Europe SE.

This material is a financial promotion disseminated by Goldman Sachs Bank Europe SE, including through its authorised branches ("GSBE"). GSBE is a credit institution incorporated in Germany and, within the Single Supervisory Mechanism established between those Member States of the European Union whose official currency is the Euro, subject to direct prudential supervision by the European Central Bank and in other respects supervised by German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufischt, BaFin) and Deutsche Bundesbank.

Switzerland: For Qualified Investor use only – Not for distribution to general public. This is marketing material. This document is provided to you by Goldman Sachs Bank AG, Zürich. Any future contractual relationships will be entered into with affiliates of Goldman Sachs Bank AG, which are domiciled outside of Switzerland. We would like to remind you that foreign (Non-Swiss) legal and regulatory systems may not provide the same level of protection in relation to client confidentiality and data protection as offered to you by Swiss law.

Asia excluding Japan: Please note that neither Goldman Sachs Asset Management (Hong Kong) Limited (“GSAMHK”) or Goldman Sachs Asset Management (Singapore) Pte. Ltd. (Company Number: 201329851H ) (“GSAMS”) nor any other entities involved in the Goldman Sachs Asset Management business that provide this material and information maintain any licenses, authorizations or registrations in Asia (other than Japan), except that it conducts businesses (subject to applicable local regulations) in and from the following jurisdictions: Hong Kong, Singapore, Malaysia, India and China. This material has been issued for use in or from Hong Kong by Goldman Sachs Asset Management (Hong Kong) Limited, in or from Singapore by Goldman Sachs Asset Management (Singapore) Pte. Ltd. (Company Number: 201329851H) and in or from Malaysia by Goldman Sachs (Malaysia) Sdn Berhad (880767W).

Australia: This material is distributed by Goldman Sachs Asset Management Australia Pty Ltd ABN 41 006 099 681, AFSL 228948 (‘GSAMA’) and is intended for viewing only by wholesale clients for the purposes of section 761G of the Corporations Act 2001 (Cth). This document may not be distributed to retail clients in Australia (as that term is defined in the Corporations Act 2001 (Cth)) or to the general public. This document may not be reproduced or distributed to any person without the prior consent of GSAMA.

To the extent that this document contains any statement which may be considered to be financial product advice in Australia under the Corporations Act 2001 (Cth), that advice is intended to be given to the intended recipient of this document only, being a wholesale client for the purposes of the Corporations Act 2001 (Cth). Any advice provided in this document is provided by either Goldman Sachs Asset Management International (GSAMI), Goldman Sachs International (GSI), Goldman Sachs Asset Management, LP (GSAMLP) or Goldman Sachs & Co. LLC (GSCo). Both GSCo and GSAMLP are regulated by the US Securities and Exchange Commission under US laws, which differ from Australian laws. Both GSI and GSAMI are regulated by the Financial Conduct Authority and GSI is authorized by the Prudential Regulation Authority under UK laws, which differ from Australian laws. GSI, GSAMI, GSCo, and GSAMLP are all exempt from the requirement to hold an Australian financial services licence under the Corporations Act of Australia and therefore do not hold any Australian Financial Services Licences. Any financial services given to any person by GSI, GSAMI, GSCo or GSAMLP by distributing this document in Australia are provided to such persons pursuant to ASIC Class Orders 03/1099 and 03/1100.

No offer to acquire any interest in a fund or a financial product is being made to you in this document. If the interests or financial products do become available in the future, the offer may be arranged by GSAMA in accordance with section 911A(2)(b) of the Corporations Act. GSAMA holds Australian Financial Services Licensce No. 228948. Any offer will only be made in circumstances where disclosure is not required under Part 6D.2 of the Corporations Act or a product disclosure statement is not required to be given under Part 7.9 of the Corporations Act (as relevant).

Canada: This presentation has been communicated in Canada by GSAM LP, which is registered as a portfolio manager under securities legislation in all provinces of Canada and as a commodity trading manager under the commodity futures legislation of Ontario and as a derivatives adviser under the derivatives legislation of Quebec. GSAM LP is not registered to provide investment advisory or portfolio management services in respect of exchange-traded futures or options contracts in Manitoba and is not offering to provide such investment advisory or portfolio management services in Manitoba by delivery of this material.

Japan: This material has been issued or approved in Japan for the use of professional investors defined in Article 2 paragraph (31) of the Financial Instruments and Exchange Law by Goldman Sachs Asset Management Co., Ltd.

Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. We have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources.


No part of this material may, without Goldman Sachs Asset Management’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient.

Date of First Use: July 5, 2022.


Please enter your email address to continue reading.

Confirm Your Access

An email has been sent to you to verify ownership of your email address.

Please verify the link in the email by clicking the confirmation button. Once completed, you will gain instant access to our insights.

If you did not receive the email from us please check your spam folder or try again.