Goldman Sachs Adjusts U.S. Recession Probability
Goldman Sachs, a prominent investment bank on Wall Street, has revised its outlook on the U.S. economy, reducing the probability of a recession in the next 12 months from 25% to 20%. This adjustment follows recent economic data indicating a stronger economy than previously expected.
Positive Economic Indicators
The economists at Goldman Sachs, led by Jan Hatzius, pointed to several factors that contributed to their more optimistic view. July’s retail sales figures exceeded analyst projections, showing the most significant increase since early 2023. Additionally, the U.S. Labor Department reported a decrease in new unemployment benefit applications to a one-month low in early August, highlighting a robust job market.
Reassessment of Recession Forecast
The positive economic indicators prompted Goldman Sachs to reassess its earlier recession forecast. The bank had raised its recession estimates from 15% to 25% after the July jobs report triggered concerns based on the “Sahm rule,” an indicator of recession risk.
- If the August jobs report on September 6 shows positive signs, Goldman Sachs may further lower its recession probability back to 15%, where it stood for almost a year before the recent adjustments.
Monetary Policy Outlook
Goldman Sachs economists are increasingly confident in their prediction of a 25-basis-point rate cut at the Federal Reserve’s September 17-18 FOMC meeting. However, they acknowledge the possibility of a larger 50-basis-point cut if the upcoming jobs report disappoints.
- With inflation moderating and a balanced labor market, the current federal funds rate of 5.25%-5.5% may be considered excessive, especially when compared to other G10 economies.
Alternative Perspective
Not all financial institutions share Goldman Sachs’ optimism. JPMorgan continues to maintain a recession probability of 45% by the end of 2025. Bruce Kasman, JPMorgan’s chief global economist, points to signs of weakening labor demand and early indications of labor shedding, tempered by gains in overall activity, especially in the service sector.
Implications for Cryptocurrency
The economic projections have implications beyond traditional markets, extending to the cryptocurrency sphere, particularly Bitcoin. Analysts suggest that Goldman’s probability cut is unlikely to trigger significant risk-seeking behavior across various asset classes, including crypto.
- Bitcoin traders might welcome a rate cut, but it could also signal an impending recession, historically leading to corrections in the market.
Hot Take on Goldman Sachs Update
Goldman Sachs’ adjustment to the U.S. recession probability reflects a more optimistic view of the economy, with positive economic indicators influencing the decision. The upcoming August jobs report will play a crucial role in further shaping the bank’s recession forecast and potential rate cuts by the Federal Reserve.
By
By
By
By