(Bloomberg) -- Goldman Sachs Group 's (NYSE:GS) top economist said there’s still a “very plausible” path for the US economy to avoid a recession despite the Federal Reserve’s aggressive tightening of interest rates and geopolitical uncertainties.
The bank maintained a 35% probability that the world’s largest economy will enter a downturn in the next 12 months, well below Wall Street’s consensus.
The steps toward avoiding a recession include a moderation in economic activity and a slowdown in nominal wage growth, as well as an easing of inflation and a rebalancing of the labor market.
“The transition to below-trend but still positive growth has already occurred, and it looks durable,” Jan Hatzius, Goldman Sachs chief economist, wrote in a note.
The views are an outlier on Wall Street. An increasing number of economists think it will take a recession for the Fed to achieve its aim of cooling price pressures. The probability of a downturn over the next 12 months stands at 60%, up from 50% odds in September and double what it was six months ago, according to a Bloomberg survey of economists last month.
Fed Chair Jerome Powell himself has said it was still possible the US could avoid a recession though he acknowledged that the window for doing so has narrowed give how persistent inflation has proven to be.
While the US may escape a recession, the Euro area and in the UK won’t, according to Goldman.
Hatzius estimates that a recession will probably start in the fourth quarter in the Euro zone, and it probably started last quarter in the UK. The key difference is real disposable household income, which will probably fall further in Europe, “largely because of the much bigger and more drawn-out increase in home heating bills.”
©2022 Bloomberg L.P.