Yield Surge to Hit US Growth But Still No Recession, Goldman Says

Goldman Sachs Group Inc. economists said the surge in US Treasury yields to historically high levels over the last several weeks will crimp economic growth and sow financial risks, though the bank is still not calling for a recession.

“The main implication of the further tightening in financial conditions led by rising rates is that the drag on GDP growth will last longer,” Goldman economists David Mericle and Ronnie Walker wrote in a note to clients Sunday.

Goldman’s team estimates about a 0.5 percentage-point blow to US gross domestic product over the next year. That’s “meaningful,” but less than the drag from tightening financial conditions last year and “too small to threaten recession,” they wrote.

Ten-year US Treasury yields have climbed about 70 basis points since the start of September, and on Friday hit the highest level since before the global financial crisis began in 2007. They closed at 4.80% Friday, leaving much of the yield curve around 5%.

“The move to a higher-rate regime poses” an array of risks, Mericle and Walker wrote. “They are probably not large enough individually to trigger a recession unless they occur abruptly and aggressively or simultaneously,” they added. And even if the adverse scenarios resulted, Federal Reserve interest-rate cuts “would offset much of the impact,” they wrote.