Goldman Sachs Predicted Reduces Chances of US Recession

Goldman Sachs Predicted Reduces Chances of US Recession

Goldman Sachs economists have reduced the recession probability to 15 percent from 20% for the next 12 months. Goldman Sachs’ recession prediction comes after noticing recent positive trends in the labor market and the downward spiral effects of inflation.

The key factors of Goldman Sachs's recent market prediction have a lot to do with the economist’s confidence in the Fed being done with raising interest rates further. Goldman’s bullish view on the United States economy is also based on the current inflation being very close to the Fed’s target range.

The investment bank expects real growth in disposable income by next year, with the support of strong job growth and increasing wages. Goldman Sachs cited the increased US consumer spending in July, reducing inflation and strengthening their expectations from Feds, keeping the interest rates unchanged in the month of September. However, Feds could still raise interest rates one last time in November by another 25 points before starting to cut rates by 25bp in the second quarter of 2024.  

The combination of a higher U3 unemployment rate, slower wage growth and—most importantly—lower core inflation should help the more hawkish FOMC participants get comfortable with the notion that they can keep the funds rate at its current level while assessing whether further hikes are needed.

Fed Chairman Jerrome Powell’s promise to “Proceed Carefully” can be taken as a signal that the Feds have taken the September rate hike off the table. Goldman expects Feds to stop raising interest rates entirely and will start to ‘very gradually’ cut rates, beginning with a 25bp rate cut by the second quarter of 2024.

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Goldman Sachs pointed out that the drag from monetary policy tightening will continue to diminish before “vanishing completely” by the beginning of 2024.

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