Goldman Sachs says the risk of the US falling into a recession within a year has doubled after the Fed’s aggressive rate hike

Jerome Powell’s Federal Reserve has pledged to cool down red-hot inflation.

Goldman Sachs has said the risk of a US recession coming within a year has doubled, to 30% from 15% previously.
It thinks the risk of a recession is now just shy of 50% over the next two years, following the Fed’s rate hike last week.
Yet Goldman said wages do not look like spiraling upwards in a way that would push the Fed to hike even harder.

The risk of the US economy tumbling into recession over the next year has doubled following the Federal Reserve’s 75 basis-point interest-rate hike last week, according to Goldman Sachs.

The investment bank’s analysts, led by chief economist Jan Hatzius, said in a note Monday that the chance of a recession hitting in the next 12 months had risen from 15% before the rate hike, to 30% as of this week.

And they said the chance of a recession in the next two years had risen to just shy of 50%, from 35% previously.

The Fed’s 75-basis point, or 0.75 percentage point, interest rate hike on Wednesday last week was the biggest increase in borrowing costs since 1994.

The central bank was responding to data released less than a week earlier which showed US inflation hit a 41-year high of 8.6% in May, a reading which was much higher than expected.

Following the Fed’s hike and the inflation data, investors have ramped up their expectations for the path of interest rates. Many expect the federal funds target range to rise to around 3.8% by early 2023, from between 1.5% and 1.75% currently.

Goldman said these expectations had led to a tightening of so-called financial conditions. In other words, the situation in markets has worsened, with stocks falling and bond yields rising, in a way that can …read more

Source:: Businessinsider

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