Goldman Sachs Make U-Turn on Recession Prediction

There have been big questions about how likely a recession might be. The vaunted inverted yield curve, which was supposed to indicate an oncoming recession, has left many wondering how much predictive power is left. JPMorgan Chase CEO Jamie Dimon projected there was a 65% chance of a recession.

But uncertainty is creeping into the voices of some of the experts. Wharton economist Jeremy Siegel thought that the Federal Reserve needed to make an immediate 75-basis point cut in August with another in September, then he almost immediately changed his mind as markets recovered.

Now Goldman Sachs just made a U-turn in its prediction. Right after that Monday market crash — the same one that sparked Siegel’s first forecast— economists at the bank said there was a 25% chance of a recession, an increase from 15%. That Goldman report said July unemployment rate increase exaggerated “the downside risk” as more than 70% of the July increase was due to temporary layoffs and that a sharp labor drop-off is unlikely as the economy still shows strong growth.

Over the weekend, though, a new report by the bank’s economists turned about, saying that the chance of a recession had dropped back to 20%, splitting the difference between the new and older positions. The economists cited retail sales and jobless claims data, as Bloomberg reported. Stocks last week had the best week it has all year, retail sales jumped by the most since early 2023, and there were the fewest applications for unemployment since early July.

And bond giant Pimco says that despite a move in the yield curve that should indicate an oncoming recession is probably wrong, as MarketWatch reported.

On August 5, during the market throes, the yield of the 2-year Treasury fell below that of the 10-year momentarily, although things reversed that day and the inverted curve continued. The inversion has been ongoing for nearly 780 days at this point. “When the curve has turned positive following past inversions it has been a reliable indicator of a hastening recession,” MarketWatch wrote.

“I think markets have certainly proven to be much more aggressive with price action than the economy has warranted,” Mike Cudzil, a Pimco fixed-income portfolio manager told MarketWatch about the transitory yield curve reversal.

Pimco said that what set off the Monday drop and temporary inversion reversal was a “daisy-chain reaction” of multiple forces in the market, including reverberations of increased interest rates in Japan and the carry trade.