Goldman Sachs Cuts Probability Of Us Recession In Next 12 Months

by Finance 18 July 2023

Goldman Sachs Cuts Probability Of Us Recession In Next 12 Months

The Chief Economist at Goldman Sachs, Jan Hatzius, on Monday, said that the bank would cut its probability that a recession in the United States will begin within the next 12 months from an earlier 25% forecast to a 20%.

He mentioned in a research note,

“The main source of our cut is that the recent data have reinforced our confidence that bringing inflation down to an acceptable level will not require a recession.”

The market expectations of a hard landing – a situation where the interest hike of the Federal Reserve pushes the economy into a recession – has recently been challenged by insights that show a reducing consumer and producer inflation in June.

Slowing down inflation would result in a more dovish financial policy going forward.

At the same time, economic activities have remained tough, despite the remarkably high borrowing costs since the Fed began with its “rate-hiking campaign” in early 2022.

“We do expect some deceleration in the next couple of quarters, mostly because of sequentially slower real disposable personal income growth and a drag from reduced bank lending,” Hazitus added.

However, he had expected economic growth despite the below-trend pace.

Regarding the recent invasion of the Treasury yield curve, which is primarily considered a harbinger of an upcoming recession, Hazitus stated that it had validated and simultaneously reflected “overly pessimistic” economic broadcasts.

The inverted yield curve primarily signals the expectations for the Fed to cut rates in order to stimulate the economy.

The economist also said, however, there is a “plausible path” that the Fed might just cut interest rates only because of low inflation. Hazitus also added that the United States central bank would probably hike up rates by another 25 points at its meeting next week about rate setting, which he expects to be the concluding hike of the current monetary tightening cycle.

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