Economists from the Goldman Sachs Group have increased the probability of a recession in the United States in the next year to 25 per cent from 15 per cent, Bloomberg reported. They however also noted that there are “several reasons not to fear a slump”, despite a jump in unemployment, it added.
“We continue to see recession risk as limited. The economy continues to look fine overall, there are no major financial imbalances and the Federal Reserve has a lot of room to cut interest rates and can do so quickly if needed,” Goldman economists led by Jan Hatzius said in a report to clients on August 4 (Sunday).
The US jobs data last week showed a marked slump in hiring and a three-year high in unemployment, once again pushing concerns about an economic slowdown, the report said. There are also fears that the US Fed has “waited too long” to cut interest rates, it added.
Notably, Goldman’s forecasts for the US central bank are less aggressive than those of JPMorgan Chase & Co. and Citigroup. Hatzius’s team expects the Fed to cut benchmark by 25 basis points (bps) in September, November and December; compared to JPMorgan and Citigroup who have predicted a half-point cut in September.
“The premise of our forecast is that job growth will recover in August and the FOMC will judge 25 bps cuts a sufficient response to any downside risks. If we are wrong and the August employment report is as weak as the July report, than a 50 bps cut would be likely in September,” the Goldman report said.
The economists added that they are sceptical that the US labour market is “at risk” of deteriorating rapidly. They said this because job openings are indicating that demand remains solid and there has been no obvious shock to spark a downturn, the report added.
(With inputs from Bloomberg)
