Goldman Sachs’ economists slashed the 12-month recession probability estimates for the United States to 15%, citing positive trends in inflation and the labor market.
The investment banking titan previously assigned a 20% probability of the U.S. entering a recession and noted that a recession has occurred roughly once every seven years since WW2.
It's also important to highlight that Goldman’s new estimate stands in stark contrast to the Bloomberg consensus, which stands at 60%.
“We are also substantially more optimistic than most other forecasters in terms of our baseline GDP growth forecast, which averages 2% through the end of 2024,” the economists said in a report.
One of the key factors fueling Goldman’s bullish view on the U.S. economy is that underlying inflation may already be near the Fed’s target.
“Our confidence that the Fed is done raising rates has grown in the past month. We view Chair Powell’s promise at Jackson Hole to “proceed carefully” as a signal that a September hike is off the table and the hurdle for a November hike is significant,” the economists further noted.
“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.”
Goldman expects the Fed to “very gradually” cut rates, starting with a 25bp rate cut in the second quarter of 2024.