Goldman Sachs’ economists now see an increased risk of a U.S. recession. “We are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply,” they explained.
Goldman Sachs discusses the increased risk of a recession
Goldman Sachs’ economists, led by chief economist Jan Hatzius, explained in a note Monday that the global investment bank has cut its growth forecasts for the U.S. economy, warning that the risk of a recession is rising, Bloomberg reported.
These were the words of Goldman Sachs’ economists:
Recession risk is now seen as a higher-risk front-load.
“The main reasons are that our baseline growth path is now lower,” they added. “We are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply.” Last week, the Federal Reserve approved its biggest interest-rate hike since 1994.
Goldman now predicts that the U.S. will enter a recession within the next year at 30%, up 15% from the previous estimate. The firm also sees 25% chance of the economy entering a recession the second year, if the previous one was avoided. The publication stated that this implies an increase of 48% in cumulative probabilities over the next two year, compared to 35% before.
In April, Hatzius told clients that the firm estimated “the odds of a recession as roughly 15% in the next 12 months and 35% within the next 24 months.”
“What might a recession look like?” the Goldman economists continued. “With no major imbalances to unwind, a recession caused by moderate overtightening would most likely be shallow, though even shallower recessions have seen the unemployment rate rise by about 2.5 percentage points on average.”
They warned:
Another concern is the possibility that the response to fiscal and monetary policies might be less than normal.
Goldman Sachs president and COO John Waldron told Goldman Sachs employees that they were facing unprecedented economic crises. He also warned about tougher times ahead. Lloyd Blankfein (former CEO) advised businesses and customers to plan for an American recession.
What do you think about Goldman Sachs’ warning? Leave your comments below.
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