U.S. investment bank Goldman Sachs (GS) has issued a note to clients saying that it sees the chances that the U.S. economy will enter a recession within the next 12 months at 25%.
Goldman Sachs’ economics team, led by Jan Hatzius, said the odds of a U.S. recession have risen from 15% previously following what it called a very weak July employment report.
Hatzius and his colleagues on the economics team have largely downplayed the risk of a recession over the past year but now say that the situation in America is deteriorating.
The note from Goldman Sachs comes as global equity markets plunge on heightened fears of a U.S. recession.
Stock markets are also reacting to concerns that the U.S. Federal Reserve won’t be able to lower interest rates quickly enough to prevent a recession defined as two consecutive quarters of economic contraction.
Goldman Sachs said that it now expects the U.S. central bank to lower interest rates 25-basis points in September, October and December for a cumulative cut of 75-basis points this year.
The Goldman economics team added that the central bank can always cut interest rates more aggressively in coming months if it becomes clear the U.S. economy needs further support.
Hatzius noted that there’s also a decent chance the weak jobs report for July could end up being a one-off event rather than the beginning of a prolonged labour market downturn.
While Goldman Sachs has raised its expectations for a U.S. recession, the firm remains one of the more optimistic banks on Wall Street.
Futures traders are now placing the odds of a 50-basis point interest rate cut from the U.S. Federal Reserve in September of this year at 99%.
The stock of Goldman Sachs has increased 32% in the past 12 months to trade at $470.64 U.S. per share.
