(Bloomberg) -- Economists at Goldman Sachs Group Inc (NYSE:GS). have lowered the likelihood of a U.S. recession over the next four quarters to slightly over 10 percent from roughly 20 percent at the end of the fourth quarter.
An easing in financial conditions has helped reduce downside risks considerably, Goldman economists including Jan Hatzius and David Choi wrote in a note. Signals by the Federal Reserve that its interest-rate hiking cycle is on hold have played a role in lifting sentiment.
"The Fed’s dovish shift was likely designed to decrease downside risks, and our findings suggest that this has largely worked as planned," they wrote.
Still, with better growth momentum and improving financial conditions, the Fed may need to reconsider their pause at some point, according to Goldman’s analysis.
"As the lingering effects of the Q4 tightening gradually fade away, the Fed may eventually be willing to revisit the need for patience, as indicated in the January minutes," they wrote.