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Last Updated : Apr 11, 2019 11:59 AM IST | Source: Moneycontrol.com

Chances of a recession in the US are now just 10%: Goldman Sachs

The central bank, in December last year, raised interest rates by a quarter point, inciting chaos in the market as stocks plummeted through lows of the year and investors flocked to bonds

The US Federal Reserve's policy change at the beginning of 2019 has halved the risk of a recession in the US over the next one-year to just 10 percent from the previous estimate of 20 percent at the end of the fourth quarter, says Goldman Sachs in a recent report.

Economists Jan Hatzius and David Choi cited the Fed's abrupt policy change in late January, in which they left interest rates unchanged, as the primary reason for improvement in financial conditions since the beginning of the year, reports CNBC.

The central bank, in December last year, raised interest rates by a quarter point, inciting chaos in the market as stocks plummeted through lows of the year and investors flocked to bonds.

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“The Fed’s dovish shift was likely designed to decrease downside risks, and our findings suggest that this has largely worked as planned," Goldman Sachs said.

However, the economists said the Fed’s success in staving off a recession may lead it to reconsider its policy of deferring interest rate hikes, something the central bank itself has noted. "As the lingering effects of the Q4 tightening gradually fades away, the Fed may eventually be willing to revisit the need for patience, as indicated in its January minutes,” they added.

The economists feel that the easing of financial conditions was by far the biggest influence on the reduction of downside risks. “Our analysis also suggests that downside risk will likely be contained in the near-term, barring another large tightening in the financial conditions index. In addition to the reversal of much of the Q4 FCI tightening, US growth momentum has improved and global growth appears to be stabilising,” they stated.

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First Published on Apr 11, 2019 11:59 am
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