A US recession is no slam dunk, says Goldman Sachs

New York

While investors, business leaders and some economic models continue to warn that a recession is imminent, Wall Street’s most powerful investment bank remains optimistic.

Goldman Sachs told clients on Monday it sees a 35% chance of a US recession in the next 12 months. While that’s twice the normal risk of a recession, it’s below the 63% average in a recent survey of forecasters by The Wall Street Journal.

“We still see a very plausible, recession-free four-step path from today’s high-inflation economy to a future low-inflation economy,” Goldman Sachs chief economist Jan Hatzius wrote in a report.

In other words, recession is not a slam dunk. The Federal Reserve may yet pull off a soft landing for the US economy.

In contrast, a Bloomberg Economics model released in late October determined that the risk of recession over the next 12 months is at a staggering 100%. A probability model run by Ned Davis Research also found a 98.1% chance of a global recession.

But Goldman Sachs pointed out that the transition to more sustainable economic growth – but still positive – “has already happened, and it looks sustainable”. The bank expects gross domestic product to grow by around 1% next year.

Despite Friday’s stronger-than-expected jobs report, Goldman Sachs says the labor market’s recovery “appears to be on track.”

And the bank is surprised that wages have cooled, even though they remain high.

“The most encouraging last step on the narrow path to a soft landing has been the slowdown in nominal wage growth,” Hatzius wrote.

But the biggest problem facing the economy—high inflation—remains a major challenge.

Goldman Sachs admits there has been “much less progress” on the pricing side. Inflation measures have mostly stopped getting worse, but they haven’t gotten better.