Fed-in-a-box: Will there ever be a good time?

Goldman Sachs cuts S&P forecast

Reduced expectations for economic growth, corporate earnings and stock market gains hardly seem the ideal climate for raising interest rates, but such is the box in which the Federal Reserve finds itself.

Each concern was highlighted Tuesday in a Goldman Sachs analysis that gained significant Wall Street attention. The bank's strategy team cut its full-year earnings estimate by 4 percent to $109, its gross domestic product projection for 2016 by 14 percent to 2.4 percent and further knocked down its year-end target for the stock market index, from 2,100 to 2,000. If that wasn't enough, Goldman also cut its global growth expectations for next year, from 4.3 percent to 3.7 percent.

"Flat is the new up," Chief U.S. Equity Strategist David Kostin and his team proclaimed as the new motto for investors in 2016.

Don't expect those words to show up in any presidential campaign slogans.

The downbeat outlook comes as the market waits on tenterhooks for the Fed to make a move on interest rates. Expectations, including from Goldman, are that the U.S. central bank still will hike this year, probably at December's Federal Open Market Committee meeting.

But faced with a bogged-down economy and the prospect of a government shutdown either in October or December, the Fed will find itself hiking into a less-than-ideal environment.

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"They sort of made their bed, didn't they?" said Jim Paulsen, chief investment strategist at Wells Capital Management.