Goldman Sachs cuts the odds of a US recession next year

Goldman Sachs has downplayed the odds of a US recession in the next 12 months, lowering the probability to 20% from 25% on the back of positive economic activity.

The investment bank’s chief economist, Jan Hatzius, cited a better-than-expected batch of economic data in a research report released Monday.

“The main reason for our downgrade is that recent data has strengthened our confidence that bringing inflation down to an acceptable level will not require a recession,” he said.

The chief economist cited resilience in US economic activity, saying second-quarter GDP growth was tracking at 2.3%. A rebound in consumer confidence and unemployment levels dropping to 3.6% in June also added to Goldman Sachs’ optimism.

The US economy expanded at a 2% annual pace in the first quarter. Last Thursday, data from the Labor Department showed just that Unemployment claims rates It fell to 239,000 for the week ending June 24, well below the estimate of 264,000 and representing a decrease of 26,000 from the previous week.

There are also “strong fundamental reasons” to expect the decline in consumer prices to continue after core inflation in June, with the exception of food and energy, It rose at a slower pace Since February 2021.

However, the investment bank expects some slowdown in subsequent quarters as a result of sequentially slowing real personal disposable income growth.

“But the downturn in financial conditions, the recovery in the housing market, and the continued boom in factory construction all suggest that the US economy will continue to grow, albeit at a slower pace than the overall trend,” Hatzios said.

Goldman still expects a 25 basis point increase from the upcoming Fed meeting next week, but Hatzios thinks it could mark the last turn in the current cycle.

—CNBC’s Michael Blum contributed to this report.