Goldman Sachs Predicts Potential Fed Rate Cut in September as Recession Risk Decreases

TLDR

• Goldman Sachs has reduced its 12-month U.S. recession probability from 25% to 20%
• Recent economic data, including strong retail sales and lower jobless claims, prompted the revision
• Goldman Sachs economists are more confident in predicting a 25-basis-point rate cut by the Fed in September
• The August jobs report, due September 6, could further influence recession probability and Fed decisions
• JPMorgan maintains its recession probability at 45% by the end of 2025, citing political uncertainties

Goldman Sachs, one of Wall Street’s leading investment banks, has revised its outlook on the U.S. economy, reducing the probability of a recession in the next 12 months from 25% to 20%.

This adjustment comes in the wake of recent economic data that suggests a more resilient economy than previously anticipated.

The bank’s economists, led by Jan Hatzius, cited several factors contributing to their more optimistic view. July’s retail sales figures surpassed analyst expectations, marking the most significant increase since early 2023.

The U.S. Labor Department reported that new unemployment benefit applications fell to a one-month low in early August, indicating a robust job market.

These positive indicators have led Goldman Sachs to reassess its earlier recession forecast. The bank had previously raised its recession estimates from 15% to 25% following the July jobs report, which had triggered concerns based on the “Sahm rule” – an indicator of recession risk. However, the recent economic strength has prompted a reevaluation.

Looking ahead, Goldman Sachs economists are closely watching the August jobs report, set to be released on September 6. They suggest that if this report shows positive signs, they may further lower their recession probability back to 15%, where it stood for almost a year before the recent adjustments.

On the monetary policy front, the bank’s economists are increasingly confident in their forecast of a 25-basis-point rate cut at the Federal Reserve’s September 17-18 FOMC meeting.

However, they don’t rule out the possibility of a larger 50-basis-point cut if the upcoming jobs report disappoints. The economists note that with inflation moderating and the labor market appearing balanced, the current federal funds rate of 5.25%-5.5% – the highest across G10 economies – may be excessive.

It’s worth noting that not all financial institutions share Goldman Sachs’ optimism. JPMorgan, for instance, maintains its probability of a recession by the end of 2025 at 45%. Bruce Kasman, JPMorgan’s chief global economist, points to signs of weakening labor demand and early indications of labor shedding, although he acknowledges that these forces are being tempered by continued gains in overall activity, particularly in the service sector.

The implications of these economic projections extend beyond traditional markets to the cryptocurrency sphere, particularly Bitcoin. Tony Sycamore, an IG Markets analyst, suggests that Goldman’s probability cut is unlikely to prompt significant risk-seeking behavior across multiple asset classes, including crypto.

Markus Thielen of 10x Research notes that Bitcoin traders might welcome a rate cut, but cautions that it could also signal an impending recession, which historically has led to corrections in Bitcoin’s price.