‘Soft landing summer’: Goldman Sachs cuts recession odds to 15 percent

The odds of a recession dropped to 15 percent, according to a Goldman Sachs analysis released Tuesday.

“We are also substantially more optimistic than most other forecasters in terms of our baseline GDP growth forecast, which averages 2% through the end of 2024,” Jan Hatzius, Goldman Sachs chief economist, wrote in a research note.

The banking giant’s recession outlook recently peaked at 35 percent in March following the collapse of Silicon Valley Bank and Signature Bank, which put stress on the overall banking system. 

Those recession odds have steadily fallen during what Goldman Sachs is calling the “soft landing summer.”

Hatzius is also increasingly optimistic the Federal Reserve may soon be done raising interest rates as inflation remains relatively low and the labor market cools.

The new Goldman Sachs odds are significantly lower than the Bloomberg consensus of 60 percent. European inflation and gross domestic product (GDP) growth also give Hatzius some cause for concern. 

But Hatzius expects a “deceleration” in domestic GDP as student loan repayments resume and high mortgage rates hit the housing market as borrowing costs remain at a 22-year high.

Hatzius doesn’t anticipate interest rate cuts coming until the second quarter of 2024.

“We view Chair [Jerome] Powell’s promise at Jackson Hole to ‘proceed carefully’ as a signal that a September hike is off the table and the hurdle for a November hike is significant,” Hatzius wrote, noting the hurdles for future hikes would also likely rise.