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Goldman Sachs Sees Higher US Recession Risk Citing Concerns the Fed Will ‘Respond Forcefully’ to High Inflation

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Economists at Goldman Sachs now see an increased risk of a recession in the US. “We are increasingly concerned that the Fed will be forced to respond strongly to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply,” they explained.

Goldman Sachs on increased recession risk

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Economists at Goldman Sachs, led by chief economist Jan Hatzius, explained in a note on Monday that the global investment bank cut its growth forecast for the US economy, warning that the risk of a recession is rising, Bloomberg reported.

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Economists at Goldman Sachs wrote:

We now view recession risk as higher and more initial.

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“The main reasons are that our base growth path is now lower,” they added. “We are increasingly concerned that the Fed will be forced to respond strongly to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply.” Last week, the Federal Reserve approved the biggest interest rate hike since 1994.

The Goldman Research Group now sees a 30% chance that the US economy will enter recession over the next year, up from 15% earlier. In addition, the firm sees a 25 percent conditional probability of a recession in the second year if it can be avoided in the first year. This implies a 48% cumulative probability in the next two years, compared to 35% earlier.

Hatzius told clients in April that the firm estimates “the chance of a recession is about 15% over the next 12 months and 35% over the next 24 months.”

“What might a recession look like?” Goldman economists continued. “Without major imbalances to correct, a moderately overtightening recession is likely to be shallow, although even with a shallower recession, the unemployment rate rose by about 2.5 percentage points on average.”

They warned:

This time, another concern is that fiscal and monetary policy measures may be more limited than usual.

Earlier this month, Goldman Sachs President and COO John Waldron warned of unprecedented economic turmoil and difficult times ahead. In May, senior chairman and former CEO Lloyd Blankfein advised businesses and consumers to prepare for a US recession.

What do you think of the Goldman Sachs warning? Let us know in the comments below.

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Credit : news.bitcoin.com

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