Market Analysis

Goldman Sachs economists have increased the probability of the U.S. economy entering a recession within the next 12 months from 15% to 25%, though they still consider the risk relatively low, according to a recent report.

In their report reviewed by Bloomberg, Goldman Sachs' chief economist Jan Hatzius and his team stated that they "continue to view recession risk as limited." They noted that the U.S. economy remains "generally stable" and highlighted that the Federal Reserve has sufficient capacity to lower interest rates swiftly if upcoming data suggest deteriorating economic conditions, amid concerns that the Fed may have delayed too long in cutting rates.

The latest jobs report from the Bureau of Labor Statistics, released last week, revealed a slowdown in U.S. job growth to 114,000 in July, falling short of the 175,000 increase predicted by London Stock Exchange Group economists. Additionally, the unemployment rate unexpectedly climbed from 4.1% to 4.3%, reaching its highest level since October 2021.

Goldman Sachs economists anticipate that job growth will rebound this month, which would likely lead the Federal Reserve to implement a 25 basis point (0.25%) interest rate cut. However, if the August jobs report mirrors the weakness of July's figures, they might opt for a more substantial 50 basis point cut.

Their forecast includes anticipated 25 basis point cuts in September, November, and December. Although the Federal Reserve kept interest rates unchanged at their last meeting, officials have indicated a willingness to reduce rates in September if data show continued easing in inflation. Investors are currently expecting a 100% probability of a rate cut next month.

Federal Reserve Chair Jerome Powell noted, "The question will be whether the totality of the data, the evolving outlook, and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market." He added that if these conditions are met, a rate reduction could be considered at the next meeting in September.

Paraphrasing text from "Fox Business" all rights reserved by the original author.