Goldman Sachs economists do not expect the Senate to pass President Joe Biden's Build Back Better Act, and they have reduced their forecast for 2022 GDP growth as a result.
The firm now expects GDP will grow just 2.4% on a Q4/Q4 basis and 3.5% on a full-year basis, down from expectations of 2.9% and 3.8% released just weeks ago. Its early December forecast was also a downward revision from earlier expectations.
The firm's latest GDP downgrade is based on expectations that without passage of the $1.75 trillion BBB package, spent over 10 years, federal spending will fall from 6% currently to between 1.5% and 2% by the fourth quarter of 2022.
Goldman notes, however, that Congress "is likely to approve some new spending in 2022, though most of it would occur over the next several years."
Will Goldman Downgrade Its Bullish Forecast?
No word yet if Goldman's downgrade of economic growth will lead to a downgrade of its stock market forecast for 2022, which is one of the highest on the Street.
Goldman strategists led by David Kostin set a target of 5,100 for the S&P by year-end 2022 in mid-December. That equated to a 10% gain at the time. Now, 5,100 is just 6.3% above the index current level in mid-Tuesday trading.