(Bloomberg). — Inflation-stricken Americans are now relying upon leverage in some way to finance their purchases, according to Bloomberg. Goldman Sachs Group Inc (NYSE:).’s chief economist, Jan Hatzius.

“Borrowing is going to be a short-term driver of spending, and I think has been to some degree” already, Hatzius said on Bloomberg Television Tuesday. “Consumer spending is going to be relatively slow. Income is going to be quite weak in 2022.”

He stated that consumer credit is increasing and there’s been an increase in mortgage equity withdrawal. This means homeowners can take out a loan to protect the appreciation of their home. Hatzius pointed out that both of these dynamics favor spending.

This contrasts with economists’ view that bloated stocks of savings (thanks mainly to government transfer during the pandemic) are a key pillar in consumer demand support.

The projections of US growth by Goldman economists were cut to 1.25% in 2022. This is compared to the 2021 period. 

The fourth-quarter-on-fourth-quarter comparison again shows that they see an increase of 1.5% in 2023. That’s below the trend rate of expansion for the US.

Hard Landing

Hatzius stated that the US slowdown will be driven largely by domestic demand. “Higher interest rates, lower stock prices, somewhat wider credit spreads and to some degree” a stronger dollar will all impinge on demand, he said.

Goldman believes the Federal Reserve will raise its benchmark rate from 3% to 3.25%, although Hatzius stated that it may need to lower inflation. He said that this raises the risk of a hard landing.

Meantime, consumers’ reliance on leverage “supports spending in the short term but ultimately is not going to be a sustainable source of big increases in spending,” Hatzius said. “So it builds in a slowdown, sort of down the road.” 

He said that the timing of any downturn in housing prices will decide when it happens. While that’s not yet evident in the data, it’s bound to come given the surge in mortgage rates, he said. 

(Corrects project for Fed policy rates in the third-to-last para.

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