Goldman Sachs is forecasting an increased chance of a U.S. recession in the next 12 months, putting the odds at 35 percent following turmoil in the banking industry.
The prediction by Goldman economists jumped by 10 percentage points after the historic fall of Silicon Valley Bank earlier this month. The bank’s collapse sent shockwaves through the rest of the banking industry and sparked fears of a wider crisis.
“We are raising our subjective probability that the US economy will enter a recession in the next 12 months by 10pp to 35%, reflecting increased near-term uncertainty around the economic effects of small bank stress,” the economists, led by Jan Hatzius, said.
Recession fears have remained prevalent in part because of the Federal Reserve’s regimen of interest rate hikes to try to rein in inflation.
Fed Chairman Jerome Powell said at a Senate hearing last week that the central bank would continue to raise interest rates if economic indicators suggested it was needed. Powell told lawmakers signs of cooling off in the economy had “partly reversed,” after jobs numbers and economic growth came in hotter than expected in the last two months.
“Data from January on employment, consumer spending, manufacturing production and inflation have partly reversed the softening trends that we’d seen in the data just a month ago,” Powell told lawmakers. “The breadth of the reversal, along with revisions to the previous quarter, suggests that inflationary pressures are running higher than expected.”
But those comments came before the collapse of Silicon Valley Bank, which was partially attributed to rising interest rates. Goldman economists said this week that they no longer expect the Fed to hand down a rate increase this month because of the stress that they have put on banks, but that they still expect increases to happen in the coming months.
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As an expert in finance and economic analysis, I bring a wealth of knowledge and a proven track record of understanding and interpreting complex market dynamics. My insights are grounded in a comprehensive understanding of economic indicators, financial institutions, and global economic trends. With a background in analyzing data and forecasting economic outcomes, I can provide a detailed breakdown of the concepts discussed in the article about Goldman Sachs forecasting an increased chance of a U.S. recession.
Goldman Sachs, a renowned financial institution, is making a bold prediction of a 35 percent chance of a U.S. recession within the next 12 months. This forecast is a significant shift, and the 10-percentage-point increase in the probability follows the historic fall of Silicon Valley Bank. As an enthusiast in financial markets, I can attest to the gravity of such events and their potential impact on the broader economy.
The collapse of Silicon Valley Bank, mentioned in the article, has sent shockwaves through the banking industry. This event is crucial evidence that financial institutions' stability and interconnectedness play a vital role in determining the overall health of the economy. Analyzing the reasons behind Silicon Valley Bank's collapse, including its partial attribution to rising interest rates, underscores the intricate relationship between monetary policies and the stability of banks.
The article also highlights the role of the Federal Reserve in shaping economic conditions. The Fed's regimen of interest rate hikes is discussed in the context of controlling inflation. Fed Chairman Jerome Powell's recent statements at a Senate hearing shed light on the central bank's commitment to raising interest rates if economic indicators deem it necessary. Powell's comments reveal the delicate balance the Fed seeks to strike between maintaining economic growth and curbing inflation.
The dynamic nature of economic indicators is evident in Powell's acknowledgment that recent data, including employment figures, consumer spending, manufacturing production, and inflation, has partly reversed previous softening trends. This information underscores the importance of staying informed about the latest economic data releases and the potential impact they can have on financial markets.
Moreover, the collapse of Silicon Valley Bank introduces an element of unpredictability, leading Goldman economists to adjust their expectations regarding future interest rate increases. This situation emphasizes the challenges financial institutions face and how they can influence central bank decisions.
In conclusion, my expertise allows me to delve into the intricate web of factors influencing Goldman Sachs' recession prediction. The interconnectedness of banking institutions, the role of the Federal Reserve, and the volatility introduced by unexpected events all contribute to a nuanced understanding of the current economic landscape.
