Economists at Goldman Sachs Group Inc. raised the probability of a U.S. recession next year to 25% from 15% but said there are several reasons not to worry about a recession even if unemployment rises sharply.
“We continue to believe recession risks are limited,” Goldman Sachs economists led by Jane Hazus said in a note to clients on Sunday.
They said the economy still looks “generally good” and there are no major financial imbalances, while the Fed has plenty of room to cut interest rates and can do so quickly if needed.
U.S. employment data that ended last week showed that hiring slowed significantly in July and the unemployment rate rose to the highest level in nearly three years, raising concerns about an economic slowdown and concerns that the Federal Reserve would wait too long to cut interest rates.
Goldman Sachs’ forecast for the Fed is less aggressive than JPMorgan Chase & Co.’s and Citigroup’s. Hatzius’ team expects the central bank to cut its benchmark interest rate by 25 basis points in September, November and December. In contrast, JPMorgan Chase & Co. and Citigroup Inc. revised their forecasts, predicting that policymakers will cut interest rates by half a percentage point in September.
“Our forecast assumes that job growth will resume in August and the FOMC will judge that a 25 basis point rate cut is sufficient to address any downside risks,” Goldman Sachs economists said. “If we are wrong, the August jobs report will be different from the July one.” If the report is still weak, a 50 basis point rate cut is likely in September.”
Economists added that they were skeptical that the labor market was at risk of deteriorating rapidly, in part because job openings showed demand remained strong and there was no clear shock to trigger a downturn.
