Goldman Sachs slashed the odds that the US would suffer a recession in the next 12 months to 15% from an earlier 20% forecast with the Federal Reserve close to calling time on its war against inflation, according to the investment banker’s report.
Chief economist Jan Hatzius said Goldman Sachs had changed its outlook because the bank is becoming increasingly confident that the Fed is done hiking interest rates, having lifted borrowing costs from near-zero to around 5.5% over the past 18 months.
"On net, our confidence that the Fed is done raising rates has grown in the past month," he wrote in a research note. "We view Chair [Jerome] 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," Hatzius added, referring to the central banker's speech in Jackson Hole, Wyoming last month.
In recent months, cooling inflation and the first signs of labor market weakness appear to have made it less likely that the Fed will press ahead with further interest-rate hikes. U.S. job growth picked up in August, but the unemployment rate jumped to 3.8%, and wage gains subsided, suggesting that labor market conditions were easing and forming expectations that the Federal Reserve may not raise interest rates this month.
Hatzius’s 15 % recession estimate is well below a Bloomberg consensus of 60%. Goldman is also more optimistic than peers on US economic growth, predicting an average 2% pace through the end of 2024.
The closely watched employment report from the Labor Department on Friday also showed 736,000 people entered the job market last month, boosting the participation rate to the highest level in three and a half years.