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Goldman Sachs says chance of a recession is now just 10%
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Goldman Sachs economists say Federal Reserve policy has reduced the risk of a recession over the next year to just 10% from a previous 20% at the end of the fourth quarter.
The economists concluded that the improvement in financial conditions since the beginning of the year is in large part due to the abrupt policy shift by the Fed, after it raised interest rates by a quarter point in December.
But the Fed’s success in fighting off a recession may actually make it reconsider its policy of holding off interest rate hikes, as the central bank itself has noted, the economists wrote.
“The Fed’s dovish shift was likely designed to decrease downside risks, and our findings suggest that this has largely worked as planned. As the lingering effects of the Q4 tightening gradually fade away, the Fed may eventually be willing to revisit the need for patience, as indicated in the January minutes,” they wrote.
The Fed was expected to release the minutes Wednesday of the Federal Open Market Committee’s March meeting, when it held rates steady. The Fed, after that meeting, released revised economic and interest rate forecasts that showed expectations for a weaker economy and no rate increases this year, reinforcing the “patient” stance officials had been discussing.
[link to www.cnbc.com (secure)]
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