Goldman Sachs Warns Rising Rates Threaten US Consumer Spending
Goldman Sachs warns that rising interest rates and a diminished wealth effect could reduce US consumer spending and stock returns through 2027.
The investment bank Goldman Sachs warned Wednesday that rising interest rates are tightening financial conditions in the United States, creating risks for stock returns and consumer spending. The bank highlighted a potential decline in the wealth effect, a phenomenon where consumers reduce spending as asset prices for housing and stocks stagnate or drop.
Economist Pierfrancesco Mei noted that higher rates reduce the appetite for credit financing, which specifically slows demand for automobiles. The bank projects that current rate levels could slow consumer spending growth by 0.2 percentage points in 2027. Mei stated that if equities remain flat through 2027 due to higher rates, the missing boost from wealth effects would lower consumer spending growth by just under 0.5 percentage points.
Further projections indicate that residential real estate investment growth could drop by 2 percentage points and capital expenditure could decline by 0.3 percentage points in 2027 if rates persist at current levels. These warnings follow the 10-year US Treasury yield surpassing the 5% threshold, reaching its highest level since 2002. Goldman Sachs expects the Federal Reserve System to issue one more rate hike before the end of the year.
