Goldman Sachs has reduced its forecast for the odds of a U.S. recession over the next 12 months, citing a robust September jobs report that beat expectations.
The investment bank now estimates a 15 percent chance of a recession, down from 20 percent, according to a note by chief U.S. economist Jan Hatzius released on Oct. 6.
“We have cut our 12-month U.S. recession probability back to the unconditional long-term average of 15 percent,” Hatzius wrote, noting that the latest employment data has alleviated fears that labor demand was “weakening too quickly to prevent the unemployment rate from trending higher.”
“The September jobs report shows a nice bump in labor demand at the beginning of the fall,” said Bill Adams, chief economist at Comerica Bank. “The U.S. economy is growing solidly in 2024 even as inflation slows to near the Fed’s target.”
In his note, Hatzius indicated that the strong jobs report had reinforced Goldman Sachs economists’ confidence that the Federal Reserve would slow the pace of future rate cuts, with the investment bank expecting a quarter-point reduction when Fed officials meet to vote on rate policy in November.
“On the face of this the Fed should be hiking rates with these sorts of figures, not cutting rates,” Knightley wrote, adding that ING’s base case remains that the United States can avoid a recession “on the assumption that a fundamentally sound economy responds to rate cuts and greater political clarity after the election.”
Still, ING economists believe that the risks remain skewed toward weaker growth, according to Knightley. He said consumers believe that the job market is deteriorating, which runs the risk that they'll become more wary regarding their spending.
“This is hugely important given consumer spending is around 70 [percent] of GDP,” he wrote. “We will have to wait and see. For now we continue to expect 25 [basis point] rate cuts through to next summer with the Fed funds bottoming at around 3.25-3.5 [percent].”
Knightley’s prediction for the terminal interest rate aligns with Goldman Sachs’s, which projects rates to be within the 3.25-3.5 percent range by June 2025.
This week, investors are sure to keep a close eye on the consumer price index (CPI) data, scheduled for release on Thursday. Inflation figures will be a crucial determinant of the Fed’s next moves, as policymakers aim to curb inflation without denting economic growth.
Meanwhile, Goldman Sachs also raised its 2024 year-end S&P 500 target, forecasting it to reach 6,000 points, up from its previous estimate of 5,600. The revision reflects optimism about not just the strong labor market data but also upcoming earnings reports.
