Goldman Sachs economists estimate the risk of a recession in the United States is “limited” to 25%

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Goldman Sachs economists have raised the probability that the U.S. economy will slide into recession in the next 12 months from 15% to 25%, while continuing to view the risk of recession as limited, according to a report.

Goldman economists, led by Jan Hatzius, the firm's chief economist and head of global investment research, wrote that they “continue to view recession risk as limited” in a report to clients Sunday and reviewed by Bloomberg.

They said the U.S. economy appears to be doing “well overall” and noted that the Federal Reserve has ample room to cut interest rates if needed and can do so quickly if upcoming data releases show signs that economic conditions are deteriorating amid concerns that the Fed waited too long to cut rates.

Last week, the Bureau of Labor Statistics released its latest employment report, which showed that U.S. job growth slowed to 114,000 in July, less than the 175,000 predicted by economists at the London Stock Exchange Group. The unemployment rate also unexpectedly increased, from 4.1% to 4.3%, its highest level since October 2021.

JULY JOBS REPORT JUST TRIGGERED A RELIABLE RECESSION INDICATOR

Fears of a recession rose after a weaker-than-expected July jobs report. (Michael Nagle/Bloomberg via Getty Images/File)

Goldman Sachs economists said they expect job growth to improve this month and that would prompt the Fed to cut interest rates by 25 basis points, or 0.25 percentage points, though they noted that if the August jobs report is as sluggish as July's, they could opt for a deeper cut.

“Our forecast is based on a recovery in employment growth in August and the FOMC will judge a 25 bps cut as a sufficient response to downside risks,” Goldman economists write. “If we are wrong and the August jobs report is as weak as July’s, then a 50 bps cut would be likely in September.”

Ticker Title Last Change % Change GS THE GOLDMAN SACHS GROUP INC. 470.20 -30.07 -6.01 %

ELON MUSK SAYS FED IS 'FOOLISH' FOR NOT CUTTING INTEREST RATES AGAIN

Goldman Sachs economists say the risk of a recession is limited, although they have raised the probability from 15% to 25%. (Reuters/David Gray/File)

Goldman's forecast for Federal Reserve interest rate cuts currently calls for 25 basis point cuts in September, November and December.

Although the Federal Reserve left interest rates unchanged at its policy meeting last week, central bank officials have signaled they are prepared to cut rates in September if economic data show inflation continues to fall. Investors have put a 100% chance of a rate cut next month.

FED KEEPS INTEREST RATES AT 23-YEAR HIGH, BUT OPENS DOOR TO RATE CUT

Federal Reserve Chairman Jerome Powell said the central bank could cut interest rates next month, depending on economic data. (Kevin Dietsch/Getty Images/File)

“The question will be whether the totality of the data, the evolution of the outlook and the balance of risks are consistent with growing confidence in inflation and the continued strength of the labor market,” Federal Reserve Chairman Jerome Powell said at a news conference after the meeting.

“If this test is successful, a reduction in our key rate could be on the table as early as the next meeting in September,” he added.

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FOX Business' Megan Henney contributed to this report.

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