Goldman Sachs says a recession in the United States is not bullshit

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Even as investors, business leaders and some economic models continue to warn that a recession is imminent, Wall Street’s most powerful investment bank remains cautiously optimistic.

Goldman Sachs told clients on Monday that it still sees a 35% chance of a U.S. recession in the next 12 months. While that’s double the normal risk of a recession, it’s well below the 63 percent average in a recent survey of forecasters by the Wall Street Journal.

“We still see a very plausible four-step non-recessionary path from the high-inflation economy of today to a low-inflation economy of the future,” Goldman Sachs chief economist Jan Hatzius wrote in a report

In other words, a recession is not a slam dunk. The Federal Reserve may yet achieve a soft landing for the US economy.

By contrast, a Bloomberg Economics model published in late October put the risk of a recession over the next 12 months at a staggering 100%. A probability model run by Ned Davis Research also found a 98.1% chance of a global recession.

But Goldman Sachs noted the transition to more sustainable, but still positive, economic growth “has already occurred and looks durable.” The bank forecasts gross domestic product growth of approximately 1% over the next year.

Despite Friday’s stronger-than-expected jobs report, Goldman Sachs says labor market rebalancing “appears to be on track.”

And the bank is impressed that wages have cooled, although they remain high.

“The most encouraging recent step on the narrow path to a soft landing has been the slowdown in nominal wage growth,” Hatzius wrote.

But the biggest problem facing the economy, high inflation, remains a major challenge.

Goldman Sachs admits there has been “much less progress” on pricing. Inflation metrics have mostly stopped getting worse, but they haven’t really improved either.

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