Goldman Sachs has significantly lowered its estimate of the likelihood of a US recession, citing lower inflation rates and a resilient labor market as key factors contributing to this adjustment. According to Chief Economist Jan Hatzius, the investment bank now places the odds of a recession at 15 percent, down from 20 percent just a month ago.
In a research note, Hatzius expressed his optimism about the US economy’s prospects, highlighting two essential factors behind the revision. “First, real disposable income looks set to reaccelerate in 2024 on the back of continued solid job growth and rising real wages,” noted Hatzius. “Second, we still strongly disagree with the notion that a growing drag from the ‘long and variable lags’ of monetary policy will push the economy toward recession.”
The updated US recession estimate by Goldman Sachs sharply contrasts with the Bloomberg consensus, which currently stands at a higher 60 percent. Furthermore, the investment bank appears more bullish on US economic growth, predicting an average growth rate of 2 percent through the end of 2024.
Regarding the Federal Reserve’s future policy actions, Hatzius emphasized that a rate hike in September is “off the table.” He argued that the requirements for a rate hike in November are “significant,” citing factors such as higher unemployment, slowing wage growth, and reduced core prices that would likely deter Fed authorities from moving forward with their plans. Hatzius went on to say, “On net, our confidence that the Fed is done raising rates has grown in the past month. We, therefore, expect only very gradual cuts of 25-bps per quarter starting in 2024Q2.”
Recent economic data signals have generally favored the Federal Reserve’s decision to maintain interest rates at their current levels, at least until signs of economic trouble emerge. Weak manufacturing figures and a two-month dip in consumer spending have pointed to a moderation in the world’s largest economy. However, there is optimism that this dip will be followed by a pickup in economic activity toward the end of the year.
While the revised outlook from Goldman Sachs is encouraging, only time will tell if these more optimistic projections materialize. Nevertheless, Hatzius expressed his confidence in the long-term health of the US economy, reflecting the investment bank’s positive sentiment.
Overall, the improved outlook for the United States is beginning to show signs of positive growth. Both the Federal Reserve and chief economists, including Jan Hatzius of Goldman Sachs, are increasingly acknowledging the likelihood of a prosperous future for the world’s largest economy.
Source: Bloomberg
