Goldman Sachs economists now see an increased risk of a US recession. “We are increasingly concerned that if energy prices continue to rise, even as activity slows sharply, the Fed will be forced to respond aggressively to high headline inflation and consumer inflation expectations.”
Goldman Sachs on heightened risk of recession
Economists at Goldman Sachs, led by chief economist Jan Hatzius, said in a note Monday that the global investment bank had lowered its growth forecasts for the US economy and warned of a rising risk of a recession, Bloomberg reported.
Goldman Sachs economists wrote:
We now see the risk of recession as higher and more advanced.
“The main reasons are that our fundamental growth trajectory is now lower,” they added. “We are increasingly concerned that if energy prices continue to rise, even as activity slows sharply, the Fed will be forced to respond aggressively to high headline inflation and consumer inflation expectations.” Last week, the Federal Reserve approved its biggest rate hike since 1994.
The Goldman research team now sees a 30% chance that the US economy will enter a recession next year, up from 15% previously. Additionally, the company sees a 25% conditional probability of a recession in its second year if one is avoided in the first. That implies a cumulative probability of 48% over the next two years, up from 35% previously, according to the publication.
In April, Hatzius told clients that the company estimates “the probability of a recession at about 15% over the next 12 months and 35% over the next 24 months.”
“What might a recession look like?” continued the Goldman economists. “Without major imbalances to unwind, a moderately over-stressed recession would most likely be shallow, although even shallower recessions have seen the unemployment rate rise by an average of about 2.5 percentage points.”
Another concern this time around is that the fiscal and monetary policy response could be more limited than usual.
Earlier this month, Goldman Sachs President and COO John Waldron warned of unprecedented economic shocks and tougher times ahead. In May, Senior Chairman and former CEO Lloyd Blankfein advised businesses and consumers to prepare for a US recession.
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