For the third time since June, Investment bank Goldman Sachs has lowered the odds on a recession hitting the U.S. in the next 12 months.
Decreased Probability
Goldman Sachs now sees the chances of a contraction at 15%, down from a probability of 20% in July. This is a significant change considering the odds were at 35% in March as regional banks were roiled by market turmoil.
Slowdown in the Fourth Quarter
Goldman’s Chief Economist, Jan Hatzius, predicts a slowdown in the fourth quarter, but assures that it will be “shallow and short-lived” according to a note he released on Monday. However, economists in a Bloomberg survey still see about a 60% chance of recession in the coming year as an aggressive campaign of interest-rate increases hits the economy.
Unemployment and Inflation
Goldman’s change of forecast comes after jobs data revealed an increase in unemployment. Hatzius, however, is not concerned as he explains that the rise in the unemployment rate came from more labor force participation. Furthermore, the inflation index is being distorted; Hatzius believes that underlying inflation may already be near the Fed’s target.
A Hopeful Outlook
Despite these challenges, Hatzius suggests that the U.S. is well-positioned for a so-called soft landing. In fact, his confidence that the Fed is done raising rates has only increased in the past month.
Impact on Stocks
However, Hatzius notes that the positive economic outlook may not have a significant impact on stocks. According to Goldman’s equity strategists’ forecasts, most gains from a soft landing and an artificial intelligence boom have already been realized.