What Goldman Sachs Economists Think About 3 Major Recession Risks

By Goldman Sachs

It’s the question of the moment—Is the United States on the brink of a recession? Everyone has an answer. The consensus forecast puts our chances of being in a recession within the next 12 months at 63%. Some economists believe the risk is as high as 100%.

Our colleagues in Goldman Sachs Global Investment Research, however, see things a little differently. They don’t believe the US economy is about to enter a recession right now. And their recession odds of 35% over the next year haven’t changed dramatically in past months.

This forecast is well below the consensus odds. Why do our colleagues take this view? They recently dove into three potential recession risks:

1. The risk that a recession will be necessary to bring inflation down
The odds that a recession will be necessary to win the battle with inflation have actually fallen a little, according to our colleagues. That’s because the first two steps to bring down inflation have gone remarkably well so far.

  • We’ve started to slow GDP (gross domestic product) growth, which can help curb demand and give lagging supply a chance to catch up.
  • And we’ve made progress on reducing the oversized gap between jobs and workers in the US, which is fueling wage growth. In fact, that gap has already shrunk by nearly 50% of the amount our colleagues believe is necessary to reach a desired level of wage growth by the end of 2023.

But it’s still early. Our colleagues are waiting to see consistent evidence that labor market rebalancing is slowing wage inflation and breaking the wage-price loop.

2. The risk that the Fed will cause a recession that is not necessary

This risk might have gotten a little higher recently. It’s becoming clear that shelter and health care inflation will probably stay uncomfortably high throughout 2023, even if the labor market rebalances effectively.

Since shelter and health care have a big impact on commonly used measures of inflation, our colleagues see some risk that the Fed could focus too much on these lagging indicators, grow impatient with stubborn overall inflation numbers or tighten too quickly to see the full impact of their actions on the economy. Unfortunately, any of these responses have the potential to push us into a recession.

3. The risk that some unforeseen factor will cause a recession
With so much uncertainty around the globe, this risk is likely somewhat higher than usual. Our Research colleagues doubt the slowdown in global GDP is enough to tip the US into a recession, but it’s hard to predict the impact of potential disturbances from international markets.

In sum, Goldman Sachs economists see a 35% probability of a recession over the next year and think any recession would likely be mild. They are particularly skeptical of the common view that Fed rate hikes of the size expected, or even a little larger will be enough to cause a recession.



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Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.