With Federal Reserve officials raising interest rates at an unprecedented pace over the past year to fight sky-high consumer prices, Wall Street’s top minds have been sounding the alarm about the potential for a recession. In fact, they’ve been doing it for so long that some recession predictions are now more than a year old. The Street fears that if the Fed wants to slow inflation to its 2% target, officials will have to raise rates until a wave of job losses hits the economy. But Goldman Sachs’ economists have consistently remained upbeat amid concerns over the labor market and other economic “storm clouds.” The consensus U.S. recession probability over the next 12 months on Wall Street is roughly 65%, but Goldman’s team has seen the odds at something more like 35%—and it’s doubling down after the release of promising labor market data last week.
A red-hot labor market has helped exacerbate consumer price increases for over a year now, according to Fed officials. As a result, Chair Jerome Powell said in testimony to Congress last month that “some softening of labor market conditions” will be necessary to slow inflation, adding to long-running concerns that officials could spark a recession with aggressive rate hikes. But Powell also maintained there doesn’t have to be a “a sharp or enormous increase in unemployment to get inflation under control,” arguing there’s a pathway to a “soft landing for the economy.”
