Goldman Sachs cuts U.S. recession probability rate to 20%

Goldman Sachs’ Chief Economist Jan Hatzius says the bank is cutting its probability that a U.S recession will start in the next 12 months to 20% from an earlier 25% forecast.

“The main reason for our cut is that the recent data have reinforced our confidence that bringing inflation down to an acceptable level will not require a recession,” he said in a research note.

Market expectations of a so-called hard landing – a scenario in which the Federal Reserve’s interest-rate hikes tip the economy into a recession – have been recently challenged by data showing; slowing consumer and producer price inflation in June.

Slowing inflation would likely lead to a more dovish monetary policy going forward, he said.

Meanwhile, economic activity has remained resilient, despite significantly higher borrowing costs since the Fed started 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,” Hatzius said.

However, he expected the economy to continue to grow, although at below-trend pace.

Hatzius said the U.S. central bank will most likely hike rates by another 25 basis points at its rate-setting meeting next week in what he expects will be the last hike of the current monetary tightening cycle.

Reuters/Hauwa Abu