Music sounds better with you? 🎵

 --------------------------------------------------------------- Hello! It's Friday, September 23. After the Federal Reserve opted for [another 75 basis point increase]( to its main policy rate, we look at what this might mean for markets, inflation and the [likelihood of a recession](. Plus: Have the music industry and online streaming reached their full potential? [Goldman Sachs Research doesn't think so.]( Below are some of the top insights from Goldman Sachs. (Was this newsletter forwarded to you? [Sign up now.]( --------------------------------------------------------------- The Fed Signals Tighter Policy to Contain Inflation The Federal Open Market Committee raised its fed funds rate this week by 75 basis points and indicated another increase of the same magnitude is likely in November, a hawkish signal following the stronger-than-expected inflation report for August. Federal Reserve Chair [Jerome Powell said]( it will probably take a “sustained period of below-trend growth” and a softening of the labor market to contain price and wage increases. Goldman Sachs Research economists David Mericle and Jan Hatzius now expect rate hikes of 75 basis points in November (up from 50 basis points previously), 50 basis points in December and 25 basis points in February, for a peak funds rate of 4.5-4.75% (compared with 4-4.25% previously). What the Fed does next year will depend on how quickly growth, hiring and inflation slow, according to Goldman Sachs Research. Our economists see more risk a higher peak rate will be necessary to cool the overheated economy than policy makers will stop earlier. There's also the question of whether the FOMC will be satisfied with a high fed funds rate and will stop hiking while inflation is still at uncomfortable levels. While the FOMC raised the bar for what counts as a restrictive level of the policy rate this week, our economists think that adjustment could be a one-time change. Read the full note from [Goldman Sachs Research here](. --------------------------------------------------------------- Can You Cut Inflation Without Cutting Jobs? In the U.S., a debate is raging over whether the Fed can rebalance an overheated labor market — a key requirement to tame inflation — without a sharp rise in unemployment. In the [latest episode of Exchanges at Goldman Sachs]( host Allison Nathan breaks down [her recent Top of Mind report](. The Peterson Institute's Olivier Blanchard sees no chance of job openings declining without a large increase in unemployment. “There seems to be a hope of some immaculate conception outcome in which basically job openings decrease and unemployment doesn't increase,” he says. “It will not happen.” Jan Hatzius, Goldman Sachs' chief economist and head of Goldman Sachs Research, is more optimistic the labor market can rebalance without a sharp rise in unemployment. "We're in a post-pandemic environment in which a lot of these things are reversing. Demand has slowed very significantly and supply is improving…In that environment, this really unusual increase in job openings as the labor market moves to a lower level of utilization can unwind in a way that is very tilted towards job openings and not as tilted towards an increase in the unemployment rate.” Subscribe wherever you get your podcasts [Spotify]( |  [AppleÂ]( | [ GoogleÂ]( |  [Stitcher]( --------------------------------------------------------------- Music Streaming Is Just Warming Up 🎵 It's been more than a decade since streaming music came online, but listeners have barely started turning up the volume. Around 11% of global smartphone users paid for streamed music last year, and Goldman Sachs Research analysts led by Lisa Yang expect [this percentage to almost double by 2030.]( - Consumer spending on music still hasn't caught up to the old days. Music is one of the most under-monetized forms of entertainment, as spending sits 40% below its historical peak, according to GS Research. - Music could hold up better than other kinds of entertainment in a recession. Our analysts think streaming music may perform better than video in a downturn because it already has a better foothold with consumers: For an average subscriber, 70% of overall music listening takes place via streaming, while only 30% of video consumption is with paid streaming services. - Buying artists' back catalogs is a big business — for now. "Although strategic buyers such as Universal Music Group argue that expected returns are well in excess of their cost of capital, catalog investments will likely remain a major debate until we get greater disclosure and clarity on actual returns or until actual spend comes down. We expect catalog acquisition spend to slow down in a rising interest rate environment," according to GS Research. [Want to learn more about the music industry? Read our 2022 Music in the Air research.]( --------------------------------------------------------------- Sharmin Mossavar-Rahmani Says US Stocks Are Still the Best Investment in 'Treacherous Waters' As many of the world's economies teeter on the edge of recession and both bonds and stocks fall in price, investment decisions have become especially challenging. Sharmin Mossavar-Rahmani, head of the Investment Strategy Group (ISG), and Matheus Dibo, vice president in ISG's tactical asset allocation team, said during a meeting with journalists last week that they believe clients should remain invested in U.S. equites. - The U.S. could be a haven as economic conditions worsen. Relative to market benchmarks, being overweight on U.S. equities and underweight on emerging markets is the way forward, according to Mossavar-Rahmani. “U.S. pre-eminence has repeatedly been a key theme for us,” she says. “We still think U.S. equities are the best place in terms of piloting through these treacherous waters.” - The likelihood of recession is increasing in many places. Amid an energy crisis, the euro area and U.K. economies are likely to go into reverse according to ISG forecasts. “It's quite possible that the U.K. is already in a technical recession,” ISG's Dibo says. While the risk of recession has risen in the US, it is not yet ISG's base case for 2023. - Has inflation peaked? Mossavar-Rahmani thinks so. For her, three key drivers of inflation are supply chains, housing and wages. She sees signs that supply chains in particular have started to unsnarl, and there are indications the number of job openings has declined while housing affordability has dropped. - There's opportunity in private equity but not in crypto. “Where is there opportunity for adding value? It's in the private equity space," Mossavar-Rahmani said. "It might not get as high returns as before, but relative to other areas to generate returns, it's a good place to be." She does not share a similar view on crypto, which she considers to be more of a speculative gambling asset, rather than an actual asset class. --------------------------------------------------------------- BRIEFINGS Brainteaser: Music Streaming Wars Which of these countries is estimated to have the highest percentage of people paying for music streaming? (Hint: The answer is in our [full Music in the Air report]( A) U.S. B) China C) Sweden D) Germany [Check the answer here.]( --------------------------------------------------------------- ICYMI: In the Media [BloombergÂ]( September 20 [Markets have further to go in pricing rate hikes: Goldman]( (2:17) [Wall Street Journal]( September 20 [How Goldman Sachs found a friend in America's small businesses]( [CNBC]( September 19 [Goldman Sachs' Fink: Private money ‘critical' to financing long-term energy transition (2:38)Â]( --------------------------------------------------------------- --------------------------------------------------------------- The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. 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