Goldman Sachs managing director and head of personal finance, Joe Doran, said there is a “high probability” that the US faces a recession next year.
Talking about “Varney & Co.” He also indicated on Thursday that markets were “cooling off” after months of volatility, as inflation appears to be easing a bit.
The Labor Department revealed last month that inflation accelerated more than expected to a four-decade high in June as the price of daily necessities remains painfully high.
The department said the Consumer Price Index, a broad measure of the prices of everyday goods, including gasoline, groceries and rents, rose 9.1% in June from a year ago. Prices jumped 1.3% in the one-month period in May. Those numbers were well above the 8.8% headline figure and the 1% monthly gain expected by Refinitiv economists.
Is the United States entering a recession?
The data represents the fastest rate of inflation since December 1981.
Price increases spanned across the board with energy prices up 7.5% in June from the previous month, up 41.6% from a year ago. On average, gasoline costs 59.9% more than it did a year ago and 11.2% more than it did in May.
Goldman Sachs CEO Stuart Varney told host that despite recent increases, the “inflation picture” is calming. He said he hoped people would now be “a little bit more optimistic,” admitting that “it’s been a very tumultuous year so far.”
Doran stressed that what happened in the markets at the beginning of the year was “very rare”, explaining that “about 6% of the time there is a decline over a period of six months in both stocks and bonds.”
“The traditional balanced portfolios were a much more difficult start,” he explained.
|ribbon||protection||else||they change||they change %|
|Me: DJI||Dow Jones averages||32726.82||-85.68||-0.26%|
|SP500||Standard & Poor’s 500||4151.94||-3.23||-0.08%|
|I: COMP||Nasdaq Composite Index||12720.580154||+52.42||+ 0.41%|
The markets experienced turmoil during the first half of the year as investors digested the economic data and priced in several rate increases by the Federal Reserve as the central bank tries to curb persistent inflation.
Doran noted Thursday that, typically, “from the moment the Fed starts raising interest rates, it takes about 30 months before there’s a recession.”
He continued, “This only happens 60% of the time; 40% of the time there is no recession.”
Doran added that although the US economy has seen two consecutive quarters of negative GDP, which makes up the technical definition of a recession, “there is enough strength” given that unemployment is “still really good” and is expected to “remain really good.” . “
The CEO provided the insight the day before the July employment report was released.
Economists polled by the Wall Street Journal expect that the US economy added 250,000 jobs in July, down from 372,000 jobs in June.
“So I think it’s going to take some time before the price increase gets involved,” Doran told Varney on Thursday.
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He then argued that a recession likely won’t happen this year, noting that he thinks the market will be about 5-10% higher by the end of the year, but “with some volatility.”
However, he said he believes there is a “high probability of a recession” next year, with a 40% chance over the next 12 months – which will rise to 65% over the next two years.