Goldman Sachs Cuts Recession Probability
Recent favorable macro data has led Goldman Sachs to revise its outlook on the likelihood of a U.S. recession next year, lowering it from 25% to 20%.
Economic Outlook Brightens
In a research note over the weekend, the investment bank adjusted its 12-month recession probability, contingent on more positive developments preceding the Fed’s upcoming FOMC meeting in September.
Data Backs the Decision
After increasing its recession gauge from 15% to 25% on August 2, Goldman Sachs attributed the latest adjustment to data releases post-August 2, such as robust retail sales and favorable jobless claims figures.
Market Reaction
The announcement of a 1.0% increase in July retail sales, surpassing economists’ expectations of 0.3%, coupled with a surprising drop in initial jobless claims for the week ending August 10, reignited a bullish sentiment on Wall Street.
Upcoming Jobs Report
The August jobs report scheduled for release on September 6 holds significant weight. A positive outcome could prompt another decrease in the recession probability to 15%, a level maintained for almost a year, according to Goldman Sachs economists.
FOMC Rate Cut Forecast
Expressing confidence in their predictions, Goldman Sachs foresees a 25 basis point rate cut by the FOMC during its meeting on September 17-18. However, the bank acknowledged that a dismal jobs report could necessitate a steeper 50 basis point cut.