Higher-for-longer interest rates will likely shave 0.5% from U.S. economic growth and may force unprofitable public companies to begin cutting their workforce, strategists at Goldman Sachs wrote in a note on Sunday.

Short-term bonds have hovered near 17-year highs as U.S. jobs growth continues to suggest strength in the economy.

The resilience of the labor market and consumer spending in the face of the Federal Reserve’s aggressive rate hiking cycle likely means that the neutral rate — the level at which interest rates begin to weigh on the economy — is higher than it was during the last cycle, the firm noted.

As a result, the Fed’s current benchmark rate is not high enough currently to cause a recession, making the central bank less likely to feel the need to cut rates, Goldman Sachs analysts wrote.

“Markets have become less confident that falling inflation will be enough to prompt cuts anytime soon,” the firm wrote.

An extended period of high rates will weigh heavily on the roughly 50% of publicly traded firms that were unprofitable in 2022, the firm warned.

A wave of firms cutting costs through either reduced spending or declining headcount could create a 20,000 a month drag on payroll growth and slice 0.2% from GDP, the firm estimated.

Higher rates will also likely push the U.S. debt-to-GDP ratio from 96% to 123% over the next decade, the firm said.

Yet it does not see rising debt levels prompting a fiscal agreement in Washington in the short-term.

“We think it is unlikely that concern about debt sustainability will lead to a deficit reduction agreement anytime soon because of congressional gridlock, a lack of political attention to deficit reduction, and the upcoming 2024 election,” the firm wrote.

“And with neither of the likely presidential nominees focused on deficit reduction, it is unclear how much will change after the election.”