Goldman Sachs economists said that given the latest data on initial jobless claims, as well as the July retail sales report, they have become more confident about the prospects for the US economy for the next 12 months. Against this background, they reduced the probability of the US sliding into recession by 5%, to 20%. However, the current probability still remains 5% above the level of the beginning of the month (15%), when disappointing data on the US labor market raised fears of a recession.
"Currently, we estimate the probability of a recession at 20%, as the data published since August 2 show no signs of a recession. Continued expansion would make the U.S. look more similar to other G10 economies, where the Sahm rule has held less than 70% of the time," the economists said, adding that if the nonfarm payrolls report for August, which will be released on September 6, turns out to be "good enough", the probability of a recession in the United States may decrease by another 5%, to 15%.
As for the prospects for the Fed's monetary policy, economists expect that at its September meeting the Fed will announce a 0.25% rate cut, but if the nonfarm payrolls report turns out to be lower than experts' forecasts, the odds of a 0.5% rate cut will increase. According to the CME FedWatch Tool, markets see a 28.5% probability of a 0.5% rate cut in September (down from 50% the week before), and a 71.5% probability of a 0.25% rate cut (up from 50.0% the week before).