After Non-Farm Payrolls, Wall Street drastically changes the script! Goldman Sachs raises the possibility of a recession in the United States next year

Goldman Sachs economists have raised the possibility of a US economic recession next year from 15% to 25%, but they stated that even with rising unemployment, there should not be excessive concern about an economic downturn.

Goldman Sachs Chief Economist Hazous stated in a report sent to clients last Sunday, "We still believe that the risk of an economic recession is limited."

They mentioned that overall, the performance of the US economy remains "good," with no major financial imbalances, significant room for the Federal Reserve to cut interest rates, and the ability to act swiftly when needed.

Last week, US employment data showed a significant slowdown in non-farm payroll growth in July, with the unemployment rate rising to its highest level in nearly three years, sparking concerns about an economic slowdown and worries about the Federal Reserve acting too slowly on rate cuts.

Apart from non-farm payrolls, other labor market data also showed weakness.

After the release of the non-farm data, Wall Street investment banks quickly revised their rate cut scenarios. Among them, Goldman Sachs' forecast for the Federal Reserve was less aggressive than JPMorgan Chase and Citigroup. Hazous' team expects the Fed to cut the benchmark interest rate by 25 basis points in September, November, and December. In contrast, JPMorgan Chase and Citigroup adjusted their forecasts, expecting the Fed to cut rates by 50 basis points in September.

JPMorgan Chase expects the Fed to cut rates by 50 basis points in September and November, followed by 25 basis points at each subsequent meeting; Citigroup's forecast is the most aggressive, with their economists expecting the Fed to cut rates by 50 basis points at the September and November meetings, and by 25 basis points at the December meeting. Previously, they had expected the Fed to cut rates by 25 basis points at each of these three meetings.

Bank of America believes that the weaker-than-expected July non-farm payroll report, following soft data such as the ISM manufacturing report, will help solidify expectations for a 25 basis point rate cut by the Fed in September. Morgan Stanley expects the Fed to cut rates by 75 basis points in 2024, with reductions of 25 basis points each in September, November, and December.

Goldman Sachs economists stated:

"Our forecast assumes that job growth will rebound in August, and the Fed will consider a 25 basis point rate cut sufficient to address any downside risks. If we are wrong, and August non-farm payroll growth remains as weak as in July, then the Fed is likely to cut rates by 50 basis points in September."

Analysts also stated that they are skeptical about the risk of a rapid deterioration in the job market, partly because job vacancies indicate continued strong demand and there are no clear shocks triggering an economic recession