Goldman Sachs Reduces Probability of U.S. Recession in the Coming Year to 15%

Goldman Sachs has revised its outlook, lowering the probability of a U.S. recession occurring within the next 12 months from its previous estimate of 20% to a more optimistic 15%.

This adjustment stems from the ongoing positive trends in both inflation and the labor market, as explained in a note by Goldman Sachs Chief Economist Jan Hatzius.

The investment bank anticipates a resurgence in real disposable income in the upcoming year, driven by consistent job growth and increasing real wages. Additionally, it highlighted that the impact of tightening monetary policies will gradually diminish and eventually disappear by early 2024.

While U.S. consumer spending saw an increase in July, a slowdown in inflation has reinforced expectations that the Federal Reserve will maintain its current interest rates during its policy meeting this month.

Goldman Sachs suggests that Federal Reserve Chair Jerome Powell's cautious stance implies that a rate hike in September is unlikely, and the threshold for a November hike remains substantial. The bank also predicts a gradual reduction of 25 basis points per quarter, commencing in the second quarter of 2024.