Goldman Sachs Cuts US Recession Risk, Delays Fed Rate Cuts

Goldman Sachs Adjusts US Economic Forecast, Delays Rate Cuts

Goldman Sachs has revised its economic outlook, lowering the 12-month probability of a US recession to 25 percent, a decrease of five percentage points. The investment bank now projects the Federal Reserve will implement two 25 basis point rate cuts in December 2026 and March 2027. This represents a three-month delay from its previous forecast, attributed to lower recession risk and higher near-term core PCE inflation.

Global Economic Perspective

The report also maintains expectations for the European Central Bank, forecasting two 25 basis point rate hikes in June and September 2026, with reversals in early 2027. Regarding China, Goldman Sachs notes that the economy is growing at a solid pace, though a significant imbalance persists between strong goods production and weak domestic demand.

Implications for Markets and Policy

The delayed timeline for Federal Reserve rate cuts suggests a prolonged period of higher interest rates. This adjustment signals increased confidence in the US economy's ability to withstand current monetary policy, though the bank still anticipates below-trend growth and a rising unemployment rate. The outlook could influence investor strategies and bond market yields.

Concluding Outlook

Overall, the revised forecast indicates a more resilient US economy than previously anticipated. However, market participants will continue to monitor inflation data and labor market trends closely, as these factors remain critical determinants for future monetary policy decisions by the Federal Reserve and other central banks.

FAQ

Q: What is Goldman Sachs' new US recession probability?
A: Goldman Sachs has lowered its 12-month US recession probability to 25 percent.

Q: When does Goldman Sachs expect the Fed to cut rates?
A: The bank forecasts two 25 basis point cuts, one in December 2026 and another in March 2027.

Q: Why did Goldman Sachs change its forecast?
A: The adjustment reflects a reduced recession risk and expectations for higher near-term core PCE inflation.

Source: Investing.com