Jan Hatzios, an economist at Goldman Sachs, lowered the chances of a recession in the US to 20% from 25% previously.
“The potential for a US recession has decreased further as both recent data and persistent fundamentals point to rapid — and mostly painless — inflation from here,” he writes. “One of the reasons we expect most DM economies to achieve a soft landing is that many emerging market economies have already done so, despite their more difficult starting positions in terms of the magnitude of the energy impact and/or stabilization of inflation expectations.”
Back in March, Goldman boosted the odds of a recession to 35% and said the Fed would not raise interest rates at its March 22nd meeting. In the end, they raised interest rates and the banking crisis quickly dissipated.
In June, they lowered the odds to 25%, saying:
- “We have become more confident in our baseline estimate that banking stresses will subtract only a modest 0.4 percentage point from real GDP growth this year, as regional bank share prices have stabilized, deposit outflows have slowed, lending volumes have held up, and lending has held up. Polls indicate only limited tightening. In the future “
- “The risk of disruptive fighting in the debt ceiling has disappeared”
They expect a 25 basis point rally at the July FOMC meeting with a peak in the 5.25-5.50% range with a one-year long pause and then gradual cuts.