Goldman Economists Warn of Increased Risks of Recession in the USA
Currently, bank economists estimate the probability of the economy entering a recession over the next year at 30% compared to 15% earlier. They also see a 25% conditional probability of a recession in a year if it can be avoided next year. The overall probability of a recession in the next two years is 48% versus 35% earlier.
"We now believe that recession risk is higher and more likely at the start of the two-year period", the economists wrote in a note to clients. "The main reason for this is that our underlying growth trajectory is now lower and we increasingly fear that the Fed will be forced to respond harshly to high inflation and consumer inflationary expectations if energy prices continue to rise, even though activity will slow down sharply", they noted.
Last week The US Federal Reserve System (FRS) raised the interest rate on federal funds (federal funds rate) by 75 basis points (bp.), now its range is 1.5-1.75% per annum. The last time the US Central Bank raised the rate by 75 bp. in 1994. Since the beginning of this year, the rate has already been raised by 150 bp.
Goldman economists reiterated their 2.8% second-quarter GDP growth forecast for the US, but downgraded their forecasts for the period from the third quarter of this year to the end of the first quarter of 2023 and now expect growth of 1.75% in the third quarter of 2022, at 0.75% in the fourth quarter of 2022 and 1% in the first quarter of 2023.