Goldman Sachs has revised its forecast for the probability of a U.S. recession starting within the next 12 months, reducing it from 20% to 15%. The adjustment is attributed to the ongoing positive trends in inflation and labor market data, as highlighted in a note by Jan Hatzius, Chief Economist at Goldman Sachs.
The investment bank anticipates a reacceleration in real disposable income in the coming year, driven by sustained robust job growth and increasing real wages. Furthermore, Goldman Sachs indicated that the negative impact of tightening monetary policy is set to diminish and eventually vanish by early 2024.
While U.S. consumer spending picked up speed in July, moderating inflation has bolstered expectations that the Federal Reserve will maintain its current interest rates in the upcoming policy meeting this month.
Goldman Sachs interprets Fed Chair Jerome Powell’s cautious approach as an indication that a rate hike in September is unlikely. The bank believes that the bar for a rate hike in November is substantial.
Additionally, Goldman Sachs forecasts a gradual trajectory for interest rate reductions, with cuts of 25 basis points per quarter expected to commence in the second quarter of 2024. This projection underlines the bank’s expectation of measured and deliberate adjustments to interest rates moving forward.