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Goldman Sachs Raises U.S. Recession Risk to 25%—Why They’re Still Optimistic

Daniel Kim Views  

Goldman Sachs’ Chief Economist Jan Hatzius sent a memo to clients stating, “We continue to see recession risk as limited.” He referenced the absence of major financial imbalances and the Federal Reserve’s (Fed) potential to lower interest rates.

According to foreign reports, Goldman Sachs has increased the probability of a recession in the U.S. next year from 15% to 25%. However, they maintained that the chances of a recession remain limited, arguing that the overall outlook of the U.S. economy is positive.

Goldman Sachs predicts a 0.25 percentage point rate cut in September, November, and December, with the possibility of rate reductions later during the year. Previously, Goldman had anticipated two rate cuts in the latter half of the year but added a cut following the July employment report. Conversely, JPMorgan Chase and Citigroup predicted that the Fed would implement a “big cut” of 0.5 percentage points in September after the July employment report.

Hatzius noted, “The premise of our forecast is that job growth will recover in August, and the FOMC will judge 25 bps cuts a sufficient response to any downside risks.”

Hatzius previously mentioned that the slowdown in the July employment figures was exaggerated since there had been no clear shocks to trigger a recession. He noted, “If we are wrong and the August employment report is as weak as the July report, then a 50 bps cut would be likely in September.”

Daniel Kim
content@viewusglobal.com

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