Goldman Sachs has revised its predictions, reducing the chances of a recession in the US from 20% to 15%. Analysts at the investment bank attribute this to lower inflation rates and a strong job market, suggesting that the Federal Reserve is unlikely to raise interest rates further. Despite the cooling inflation, American families are still feeling the pressure of rising prices, resulting in increased defaults on credit card and car loans. A recent survey revealed that 61% of Americans admitted to living paycheck to paycheck.
While the Consumer Price Index has slightly cooled, the Federal Reserve’s preferred measure, the Personal Consumption Expenditures price index, jumped 3.3% in July compared to the previous year, up from June’s 3%. According to Goldman Sachs Chief Economist Jan Hatzius, “real disposable income looks set to reaccelerate in 2024, driven by consistent job growth and higher wages.”
Hatzius also expressed disagreement with the idea that the economy will face a recession due to the “long and variable lags” of monetary policy. He believes that the drag caused by monetary policy tightening will diminish and eventually disappear by early 2024. This optimistic outlook from Goldman Sachs contrasts with other experts’ predictions. Reuters polls of economists over the past year indicated a rising risk of recession, reaching 65% in October compared to 25% in April 2022, right after the first rate hike of the Federal Reserve’s tightening cycle.
Goldman Sachs attributes the reduced odds of a recession to cooling inflation and a strong job market. However, their analysis appears more positive than that of their peers. In December, Fed analysts considered a recession a “plausible” outcome. By March, they believed an economic contraction could occur as early as this year. In May and June, the Fed staff projections still assumed that the US economy would be in recession by the end of the year. In contrast, Goldman Sachs is more optimistic about the rate of growth in the US economy, predicting an average pace of 2% through the end of next year.
Due to this positive economic outlook, Hatzius concludes that the Fed is unlikely to raise interest rates later this month and faces significant hurdles for a rate hike in November. Instead, Goldman Sachs experts anticipate strong wage growth leading to a reacceleration of disposable income for Americans in the next year.
Hatzius adds that while they are confident that the Fed is done raising rates, any shifts towards easier policy would depend on future growth. Consequently, they expect very gradual interest rate cuts of 25 basis points per quarter starting in the second quarter of 2024.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
