Goldman Sachs economists lowered their probability of a U.S. recession within the next 12 months to just 15%, citing better-than-expected economic data.
"On net, our confidence that the Fed is done raising rates has grown in the past month," Hatzius said. "That said, Fed officials are unlikely to move quickly toward easier policy unless growth slows more than we are forecasting in coming quarters. We therefore expect only very gradual cuts" beginning in the second quarter of 2024.
Goldman acknowledged that its outlook is "substantially more optimistic" than many other forecasts, including a Bloomberg consensus of 60%., a broad measure of the price for everyday goods, including gasoline, groceries and rents, rose just 0.2% in July. Prices climbed 3.2% on an annual basis, marking the first acceleration in a year and underscoring the challenge of taming high inflation.
The logo for Goldman Sachs is seen on the trading floor at the New York Stock Exchange in New York City, New York, on Nov. 17, 2021. Fed policymakers have raised interest rates sharply over the past year, approving 11 rate hikes in hopes of crushing inflation. In the span of just one year, interest rates surged from near zero to above 5%, the fastest pace of tightening since the 1980s. Officials have signaled that additional rate hikes are on the table this year until there is more substantial evidence that high inflation has retreated for good.
Hiking interest rates tends to create higher rates on consumer and business loans, which then slows the economy by forcing employers to cut back on spending. Higher rates have helped push the average rate on 30-year mortgages above 7% for the first time in years. Borrowing costs for everything from home equity lines of credit to auto loans and credit cards have also spiked., although there are signs it is beginning to soften.
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