US economy now faces 15% risk of entering recession, CFO News, ETCFO

US economy now faces 15% risk of entering recession, CFO News, ETCFO



Goldman Sachs has reduced the likelihood of the United States entering a recession within the next 12 months to 15%, down five percentage points. The decision follows a positive employment report released by the Labor Department, which indicated the highest job gains in six months for September and a drop in the unemployment rate to 4.1%.

Goldman Sachs’ chief U.S. economist, Jan Hatzius, commented on the report in a note, saying it had “reset the labor market narrative” and calmed concerns about labor demand weakening too quickly.

Goldman Sachs continues to predict two consecutive 25 basis point cuts, with a terminal rate between 3.25% and 3.5% by June 2025. Hatzius also said, “We now see much less risk of another 50-bps rate cut.”

The Federal Reserve recently cut its policy rate by 50 basis points in September to the 4.75%-5.00% range, its first reduction since 2020.Financial markets have increased the likelihood of a quarter-percent reduction in November to 95.2%, up from 71.5% before the employment report, according to CME Group’s FedWatch tool.

Goldman Sachs noted that while job numbers have been volatile, there are no signs of further persistent negative revisions.

“More broadly, we see no obvious reason for job growth to be mediocre at a time when job openings are high and GDP is growing strongly,” Hatzius said.

However, the brokerage warned that October could be challenging due to a hurricane and a major strike, which could impact payroll numbers.

Economist Mark Spitznagel had recently raised concerns about the U.S. economy, suggesting it could enter a dark phase if issues are not addressed promptly, particularly with an impending recession during the election season.

Spitznagel believes the current market rally is temporary and could be misleading, warning of a potential economic disaster.Bloomberg reported that the $1.6 trillion motor-vehicle lending market is showing signs of trouble, with rising bad debts over the past three years. Loans 30 days or more past due are at levels not seen since the recovery from the Great Recession in 2010, and delinquency rates are higher among subprime borrowers.

  • Published On Oct 8, 2024 at 09:44 AM IST

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