Goldman Sachs has reduced its forecast for the probability of a U.S. recession in the next 12 months by 5 percentage points, down to 15%, following stronger-than-expected employment data. The U.S. Department of Labor recently reported the largest increase in non-farm jobs in six months for September, with the unemployment rate dropping to 4.1%.
Goldman's chief U.S. economist, Jan Hatzius, noted that the September employment report has "reset the narrative for the job market," alleviating fears of swiftly weakening job demand that could elevate the unemployment rate. The firm maintains its expectation for the Federal Reserve to continue with successive 25-basis-point rate cuts, predicting a final rate of 3.25-3.5% by June 2025. Hatzius mentioned that the risk of another 50 basis points rate cut has diminished significantly.
Last month, the Federal Reserve reduced its policy rate by 50 basis points to the range of 4.75%-5.00%, marking the first rate cut since 2020. Following the release of the non-farm employment data, the CME Group's FedWatch tool showed that financial markets increased the likelihood of a 25-basis-point rate cut in November from 71.5% to 95.2%.
Goldman Sachs recognizes the volatility in employment data but accepts its surface-level indications due to the absence of clear signs of prolonged negative revisions. Hatzius pointed out that with high job vacancies and robust GDP growth, there is no apparent reason for employment growth to falter. However, Goldman Sachs cautions that October could present challenges, as hurricanes and mass strikes might impact employment numbers.
