US recession risk easing, 'confident' Fed will cut by 25bps in Sept: Goldman Sachs
Goldman Sachs economists have revised their 12-month U.S. recession probability down from 25% to 20%, citing recent economic data that shows no signs of a downturn.
The increase was positioned midway between the long-term average recession probability of 15%—based on the historical occurrence of a recession every seven years—and the 35% estimate during the bank turmoil in early 2023.Specifically, the nonmanufacturing ISM index for July rebounded, with its employment component entering expansion territory for the first time since November 2023, economists noted.
They further observe that if the U.S. continues on its current growth trajectory, it could start to resemble other G10 economies where the Sahm rule has been less predictive, holding true in less than 70% of cases. Several smaller economies, such as Canada, Sweden, Norway, and New Zealand, have seen significant unemployment increases without slipping into recession.
On the monetary policy front, economists are more confident in their forecast of a 25-basis-point rate cut at the September 17-18 FOMC meeting. However, they do not rule out the possibility of a 50-basis-point cut if the jobs report disappoints again, given that"with inflation very benign and the labor market fully rebalanced, it has become increasingly obvious that a 5.25%-5.5% policy rate—now the highest across the G10—is excessive.
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