Goldman Sachs now sees U.S. recession risk as ‘higher and more front-loaded’

Goldman Sachs strategists are beginning to get a clearer look at the potential for a U.S. recession, seeing the risk now as “higher and more front-loaded.”

Brian Sozzi for Yahoo Finance:

“We now see recession risk as higher and more front-loaded,” Goldman Sachs Chief Economist Jan Hatzius wrote in a new note to clients. “The main reasons are that our baseline growth path is now lower and that we are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply.”
And while Goldman stopped short of saying a recession will occur, maintaining its preview stance, the bank made changes to modeling that speaks volumes on its concerns.
First, Hatzius lifted his recession probability to 30% from 15%. Second, the closely watched economist lowered his GDP outlooks for the balance of this year and 2023
“With no major imbalances to unwind, a recession caused by moderate over-tightening would most likely be shallow, though even shallower recessions have seen the unemployment rate rise by about 2½pp on average,” Hatzius added. “One additional concern this time is that the fiscal and monetary policy response might be more limited than usual.”
The investment bank’s more cautious tone coincides with rival Deutsche Bank moving forward its call that a recession will happen in 2023. Deutsche Bank is the only Wall Street firm to actually predict a recession for next year. Tesla CEO Elon Musk, meanwhile, warned on Monday in a Bloomberg interview that a recession in the near term was more than likely than not.

MacDailyNews Note: “A recession is inevitable at some point. As to whether there is a recession in the near term, that is more likely than not,” Musk said in an interview on Tuesday with Bloomberg News Editor-in-Chief John Micklethwait at the Qatar Economic Forum in Doha. “It is not a certainty, but it appears more likely than not.”
CEO of Roubini Macro Associates, Nouriel Roubini, said on Bloomberg Television Tuesday that he expects a US recession by the end of the year as measures of consumer confidence, retail sales, manufacturing activity, and housing are all slowing sharply while inflation is high. “We’re getting very close,” he said.
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