Historically, the gap between jobs and the labor force has narrowed significantly only during recessions, and as a result, Goldman Sachs believes the Fed's economic soft landing is “on a tough road.”
High-fever inflation in the U.S. is putting increasing pressure on the Fed, and Goldman Sachs sees a 35 percent chance of a recession in the U.S. within the next two years.
Just this past Sunday, Goldman Sachs chief economist Jan Hatzius said in a research note that it may be difficult for the Fed to achieve a so-called soft landing for the economy. Because the Fed's main challenge now is to close the gap between jobs and the labor force, and by tightening financial policy to slow wage growth to a pace consistent with its 2% inflation target without drastically raising unemployment.
Historically, such a sharp narrowing of the gap has only occurred during recessions, and as a result, the Fed's economic soft landing “is on a tough road.”
But Jan Hatzius also added that a recession is not inevitable, and the normalization of labor supply and durable goods prices in the post-pandemic era can be a boost for the Fed. Furthermore, many developed countries, including Britain, France, Germany, Italy, Japan, and Canada, have also embarked on a soft economic landing.
As for the U.S., of the 14 tightening cycles since World War II, 11 did have recessions within two years, but only 8 of those can be “partly” attributable to Fed tightening. And in recent times, “soft landings” have been more common. Get it right at Jan Hatzius, and the odds of a U.S. recession in the next 12 months are about 15%.
Before Goldman Sachs, many institutions and well-known investors have expressed the view that the Fed is difficult to complete the economic soft landing. For example, JPMorgan Chase CEO Jamie Dimon said after the company's earnings report last week that the risk of the Federal Reserve accidentally pushing the U.S. economy into recession while it is fighting inflation is increasing. Previously, former U.S. Treasury Secretary Summers made another “doomsday prophecy”, saying that a U.S. economic recession was inevitable.
It is also worth mentioning that economists are gradually reaching consensus on the forecast of a recession in the US economy. Relevant survey data show that they predict that the possibility of a recession in the United States in the next 12 months has risen from 20% last month to 27.5% today.
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