Economists at Goldman Sachs Group Inc. raised the probability of a recession within the U.S. next 12 months to 25 percent from 15 percent, but said there have been several reasons to not fear a slump despite soaring unemployment.
“We continue to believe that the risk of recession is limited,” Goldman economists led by Jan Hatzius said in a client report on Sunday.
The economy continues to look “good overall”, there are not any major financial imbalances and the US Federal Reserve has loads of room to chop rates of interest and may accomplish that quickly if obligatory, it said.
Last week ended with US labor market data showing Attitude had slowed significantly in July and unemployment had risen to its highest level in nearly three years, raising concerns a couple of slowdown and fears that the Fed had been waiting too long to lower rates of interest.
Goldman’s Fed forecasts are less aggressive than this by JPMorgan Chase & Co. and Citigroup. Hatzius’ team expects the central bank to chop its benchmark rate of interest by 25 basis points in September, November and December. In contrast, JPMorgan and Citigroup have revised their forecasts and now expect the central bankers to make a half-point cut in September.
“The premise of our forecast is that employment growth will recover in August and the FOMC considers 25 basis point cuts to be sufficient to address all downside risks,” Goldman Sachs economists said. “If we are wrong and the August employment report is as weak as the July report, then a 50 basis point cut would likely be needed in September.”
The economists added that they were skeptical that the labor market would deteriorate quickly, partly because job openings suggest demand stays solid and there was no obvious shock to trigger a downturn.
