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Goldman Sachs Group (GS) announced that it has raised the probability of a recession in the US over the next 12 months from 15% to 25%. This indicates the bank’s increasing concerns about economic risks. Analysts highlight that while the recession risk for 2025 remains low, the risk for the upcoming year has increased. However, they note that overall economic data looks “good” and the rise in the July unemployment rate to 4.3% does not indicate a new trend.
Recession Risk and Economic Data
In a research note published on Sunday, analysts stated, “We continue to see the recession risk as limited because the data generally looks good and we do not see major financial imbalances.” They also pointed out that Federal Reserve Chairman Jerome Powell has enough room to lower interest rates if necessary.
Goldman analysts expect the Fed to make three 25 basis point rate cuts in September, November, and December. The highlights from their weekly economic updates are as follows:
“We now expect faster cuts. Because the Fed interest rate clearly looks too high; the Fed delayed by keeping interest rates steady in July, focusing on inflation. Now, the justification for the cut involves a more urgent need to support the economy.”
Financial Markets’ Expectations
Many financial market participants expect deeper rate cuts in the near future. According to CME Group’s FedWatch tool, investors are pricing in an 86% probability that the Fed will cut its benchmark interest rate by half a point at the policy meeting in September. This rate was 11% a week ago.
Federal Reserve Chairman Jerome Powell has the authority to lower interest rates when necessary. This is seen as an important tool to mitigate potential recession risks. According to Goldman Sachs’ analyses, current economic data indicates that the recession risk is limited. However, it is also emphasized that the Fed needs to move towards faster rate cuts.
The 4.3% increase seen in the July unemployment data should not be considered a new trend. Goldman Sachs analysts state that overall economic data is in good shape and there are no major financial imbalances. According to analysts, this indicates that the overall health of the economy is positive.
