Is US out of recession risk? Goldman Sachs weighs in
Goldman Sachs has cut the probability of the United States entering a recession in the next year from 20% to 15%. The change comes after the Labor Department's positive employment report. The report pointed out the biggest job gains for September in six months and a drop in unemployment rate to 4.1%. This robust labor market performance has bolstered optimism regarding economic strength.
Employment report 'reset labor market narrative'
Goldman Sachs's chief US economist Jan Hatzius said the employment report has "reset the labor market narrative." He added that this update has allayed fears of a swift decline in labor demand. Despite the recent upswing in job numbers, Goldman Sachs warned that they have been volatile and showed no signs of continued negative adjustments.
Goldman Sachs predicts interest rate cuts
Goldman Sachs expects two consecutive 25 basis point cuts by June next year, with a terminal rate of 3.25% to 3.5%. This comes after the Federal Reserve's latest policy rate cut of 50 basis points in September, its first cut since 2020. Hatzius also said that they now see a much lower risk of another 50-bps rate cut.
Financial markets anticipate further rate reduction
Financial markets have increased the probability of a quarter-percent cut in November to 95.2%, from 71.5% prior to the employment report, according to CME Group's FedWatch tool. However, Goldman Sachs cautioned that October could be difficult due to a hurricane and a major strike, which could affect payroll numbers.
