Goldman Sachs is cutting its probability forecast of a recession this year as inflation rates fell to the lowest level in two years.
In a research note published Monday, Goldman Sachs economists said they will be cutting their probability that a recession in the United States will happen this year from 25 to 20 percent, which they noted is “far below” the 54 percent median that forecasters predicted in the latest Wall Street Journal survey.
“The main reason for our cut is that the recent data have reinforced our confidence that bringing inflation down to an acceptable level will not require a recession,” the economists wrote.
Last month, Goldman Sachs also reduced its probability that the U.S. will enter a recession down to a 25 percent chance, a rollback from when it predicted a 35 percent chance after the Silicon Valley Bank collapse.
The research note added that economic activity in the U.S. “remains vigilant” due to current GDP growth, dropping unemployment levels and the reversal of initial jobless claims. The research did expect “some deceleration” in the next two quarters due to slower personal income growth, especially with student loan repayment restarting in October.
“But the easing in financial conditions, the rebound in the housing market, and the ongoing boom in factory building all suggest that the US economy will continue to grow, albeit at a below-trend pace,” the note states.
The note added that there are “strong fundamental reasonals to expect ongoing disinflation,” including dropping used car prices. They also said that rent inflation “has a long way to fall” and that the labor market continues to “rebalance” itself in terms of job openings, labor shortages and wage growth.
Inflation slowed to 3 percent in June, which was the lowest rate the U.S. has seen in two years. Goldman Sachs analysts also said that they expect the Federal Reserve to hike interest rates up by 0.25 percentage points at its meeting later this month.