The Blubber

Goldman Sachs has said the chance of a recession is 15% in the next year.

Goldman Sachs has grown increasingly confident in the possibility of the US economy achieving the elusive "soft landing," as indicated in a recent research report.

The report, titled "Soft Landing Summer," reveals that the estimated chance of a US recession over the next year has been lowered to just 15%, aligning with historical averages. This figure is a reduction from the previous forecast of 20% and a substantial drop from the 35% projection in March. Goldman Sachs cited positive economic indicators related to inflation and the job market, suggesting that the US economy will avoid a recession triggered by Federal Reserve policies.

The bank is confident that the economy will experience a "soft landing," effectively managing inflation without slipping into a recession, a feat the Federal Reserve has rarely achieved in the last six decades. Jan Hatzius, Goldman's chief US economist, expressed disagreement with the idea that monetary policy lags will lead to a recession, predicting that these drags will diminish and eventually disappear by early 2024.

Goldman Sachs believes the Fed has completed its interest rate hikes, particularly as unemployment rises, wage growth slows, and inflation abates. However, it's worth noting that Goldman's optimism contrasts with the Bloomberg consensus of economists, which still predicts a 60% chance of a recession. While GDP tracking tools suggest robust growth in the third quarter, Goldman anticipates a mild and brief slowdown in the fourth quarter, influenced by factors such as the resumption of student loan payments and rising mortgage rates.

The report emphasized strong job growth and increasing real wages, which should lead to the reacceleration of real disposable income in the coming year, allowing consumers to continue spending, a crucial driver of economic growth.