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Risk of US recession now higher and more front-loaded, warns Goldman

The Goldman economists now see a 30% probability of entering a recession over the next year, compared to 15% previously, and a 25% conditional probability of entering a recession in the second year

Topics
US recession | US economy | Gross Domestic Product (GDP)

Enda Curran | Bloomberg 

Seeking to quell the surge in living costs, the US Federal Reserve accelerated its monetary-tightening campaign last week, executing the biggest interest-rate hike since 1994. (Photo: Bloomberg)
Seeking to quell the surge in living costs, the US Federal Reserve accelerated its monetary-tightening campaign last week, executing the biggest interest-rate hike since 1994. (Photo: Bloomberg)

Group Inc. economists warned the risk of a has grown more likely, and have downgraded their gross domestic product growth forecasts for the .

The Goldman economists now see a 30% probability of entering a over the next year, compared to 15% previously, and a 25% conditional probability of entering a in the second year if one is avoided in the first, they wrote in a Monday research note. That implies a 48% cumulative probability in the next two years compared to a 35% estimate previously.

“We now see recession risk as higher and more front-load,” economists led by Jan Hatzius wrote in the note. “The main reasons are that our baseline growth path is now lower and that we are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply.”

Seeking to quell the surge in living costs, the accelerated its monetary-tightening campaign last week, executing the biggest interest-rate hike since 1994.

While comparisons with the 1960s and 1970s are ringing louder, the Goldman economists said hot wage growth and high inflation expectations are less entrenched today as back then.

“What might a recession look like? With no major imbalances to unwind, a recession caused by moderate overtightening would most likely be shallow, though even shallower recessions have seen the unemployment rate rise by about 2½percentage points on average,” the Goldman economists wrote. “One additional concern this time is that the fiscal and monetary policy response might be more limited than usual.”

While the economists maintained their second quarter growth forecast of 2.8%, they cut their outlook from the third quarter of this year through to the first quarter of 2023, and now forecast growth of 1.75%, 0.75% and 1%, respectively, in each of those quarters.

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First Published: Tue, June 21 2022. 10:32 IST
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