Economists from Goldman Sachs Group have raised the probability of a recession in the United States within the next year to 25%, up from 15%, as reported by Bloomberg. Despite this increased likelihood, they emphasize that there are “several reasons not to fear a slump.” This comes amidst rising unemployment, a factor contributing to concerns about an economic slowdown. However, Goldman economists, led by Jan Hatzius, remain optimistic in a report issued on August 4th, stating, “We continue to see recession risk as limited. The economy continues to look fine overall, there are no major financial imbalances and the Federal Reserve has a lot of room to cut interest rates and can do so quickly if needed.”
The recent US jobs data revealed a significant decline in hiring and a three-year high in unemployment, further fueling concerns about an economic slowdown. The report also points to anxieties regarding the US Fed’s potential delay in cutting interest rates. Notably, Goldman’s forecasts for the Fed’s actions are less aggressive than those of JPMorgan Chase & Co. and Citigroup. Hatzius’s team anticipates a 25 basis points (bps) cut in the benchmark interest rate during September, November, and December, in contrast to JPMorgan and Citigroup’s prediction of a half-point cut in September.
Goldman remains relatively unconcerned about an impending economic downturn, stating, “The premise of our forecast is that job growth will recover in August and the FOMC will judge 25 bps cuts a sufficient response to any downside risks. If we are wrong and the August employment report is as weak as the July report, than a 50 bps cut would be likely in September.” The economists express skepticism that the US labor market is “at risk” of a rapid deterioration, citing solid job openings as an indicator of sustained demand and the absence of any obvious shock to trigger a downturn. (With inputs from Bloomberg)
