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Goldman Sachs has recently revised its outlook on the U.S. economy, lowering the probability of a recession within the next year to 20%, down from their previous estimate of 25%. This optimistic update comes on the heels of encouraging data on retail sales and unemployment.
A Further Drop in Recession Possibility Ahead?
In an August 17 report to clients, Goldman’s team of economists, led by Jan Hatzius, highlighted that the positive economic indicators have bolstered their confidence in the stability of the U.S. economy.
The analysts even hinted that if the upcoming U.S. jobs report for August, due on September 6, shows continued strength, they might further reduce the recession probability to 15%. This potential revision would reflect a significant shift in sentiment, given that the probability had been at 25% before this latest analysis.
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This reduction in recession aligns with Elon Musk’s 2022 prediction where he stated that the recession would last until the spring of 2024, a period which has already passed.
Key Factors in Goldman Sachs Analysis
One of the key factors driving this revised outlook is the surprising strength in retail sales. July’s retail sales figures exceeded analysts’ expectations, marking the largest surge since early 2023. This boost in consumer spending is a crucial indicator of economic health, as it suggests that consumers remain confident and are continuing to drive economic activity despite broader concerns about inflation and interest rates.
In addition to robust retail sales, recent data from the U.S. Labor Department showed a decline in new unemployment benefit applications, hitting a one-month low in early August.
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However, while the prospects of a recession appear to be waning, Goldman Sachs also expressed increased confidence that the Federal Reserve might reduce interest rates by 0.25% in its upcoming September meeting. The economists noted that if the September 6 jobs report were to disappoint, a more significant rate cut of 0.5% could be on the table.
Impact on Crypto Market
For Bitcoin and cryptocurrency traders, the prospect of a rate cut might initially seem like a positive development. Lower interest rates often lead to a weaker dollar and higher asset prices, including for Bitcoin. However, history offers a note of caution.
When the Fed cut interest rates in July 2019, Bitcoin initially rallied by 20%, only to end the year down 35% from its peak. This serves as a reminder that rate cuts, while often bullish for assets in the short term, can also be indicative of underlying economic weaknesses.
Meanwhile, JPMorgan Research recently raised its probability of a U.S. and global recession to 35% by the end of 2024, citing signs of weakening labor demand and a loss of momentum in global manufacturing.
