The firm believes the US has a 35% chance of entering another recession.
The United States economy is in an unusual, precarious position, sandwiched between economic hopes brought about by a return from the COVID-19 pandemic and energy concerns from the ongoing Russian invasion of Ukraine. Financial analysts and firms have begun charting out the chances that inflation in the US reaches a critical point and launches us into another recession.
One of the latest estimates comes from major Wall Street player Godman Sachs, who are of the belief that the US has a roughly 35% chance of entering into another recession in the next two years.
“Our analysis of historical G10 episodes suggests that although strong economic momentum limits the risk in the near-term, the policy tightening we expect raises the odds of recession. As a result, we now see the odds of a recession as roughly 15% in the next 12 months and 35% within the next 24 months,” Jan Hatzius, Goldman Sachs chief economist, said in a note to clients.
“Taken at face value, these historical patterns suggest the Fed faces a narrow path to a soft landing as it aims to close the jobs-workers gap and bring inflation back towards its 2% target.”
As interest rates rise in an effort to stave off inflation, investors and analysts have begun drafting plans just in case things take a turn for the worst.
“So what you have is an enough tightening by the Federal Reserve to deal with inflation adequately, and that is too much tightening for the markets and the economy. So the Fed is going to be in a very difficult place a year from now as inflation still remains high and it starts to pinch on both the markets and the economy,” Bridgewater Associates founder Ray Dalio told Yahoo Finance. “I think that most likely what we’re going to have is a period of stagflation. And then you have to understand how to build a portfolio that’s balanced for that kind of an environment.”