Goldman Sachs Raises US Recession Risk to 25%

Goldman Sachs economists have increased the probability of a U.S. recession occurring within the next year from 15% to 25%, while still maintaining that the overall risk remains limited. In a report reviewed by Bloomberg, chief economist Jan Hatzius and his team noted that the U.S. economy appears stable, with the Federal Reserve having sufficient capacity to lower interest rates if necessary. They emphasized that rapid rate cuts could be implemented should forthcoming economic data indicate a downturn. Recent data from the Bureau of Labor Statistics revealed a slowdown in job growth, with only 114,000 jobs added in July, falling short of the anticipated 175,000. Additionally, the unemployment rate unexpectedly rose to 4.3%, the highest since October 2021. Goldman Sachs anticipates an improvement in job growth for August, which they believe would lead the Fed to implement a 25 basis point interest rate cut. However, they caution that if the August jobs report mirrors July's sluggishness, a more significant cut of 50 basis points could be warranted. Goldman’s projections suggest that the Federal Reserve may initiate 25-basis-point cuts in September, November, and December. Although the Fed opted to keep rates unchanged in their recent meeting, officials have indicated a willingness to consider a cut in September, contingent on economic indicators showing a continued easing of inflation. Federal Reserve Chair Jerome Powell highlighted the importance of assessing the overall economic data before making any policy adjustments.