How Will Higher Rates Affect the US Economy?

This Goldman Sachs US Economics Analyst report examines how higher interest rates will affect the US economy. Interest rates have risen sharply this year, and the latest increase in long-term rates has tightened financial conditions noticeably. Based on the baseline forecast of one more Fed hike in December followed by three cuts starting in 2027H2 and a decline in long-term rates, the analysis assesses the growth drag over coming quarters and the additional risks higher rates pose. It focuses on the three most rate-sensitive GDP components: residential investment, consumer spending, and business investment (capex). Residential investment bears the heaviest weight, as the mortgage rate lock-in effect discourages both buying and moving; consumer spending slows mainly through dampened credit-financed demand for durable goods, partly offset by higher net interest income since households are net lenders;