Goldman Sachs raises the probability of a US economic recession to 25%, but still believes the risk is limited.

News from TechFlow, Goldman Sachs' economists have raised the possibility of a US economic recession next year from 15% to 25%. However, they also point out that despite a significant rise in unemployment, there are "several reasons not to worry about an economic recession."

Goldman Sachs economists led by Jan Hatzius stated: "We still believe that the risk of an economic recession is limited. The overall economy still looks good, with no major financial imbalances, the Fed has a lot of room to cut interest rates, and can do so quickly if necessary." It is worth noting that Goldman Sachs' forecast for the Fed is not as aggressive as that of Morgan Stanley and Citigroup.

Hatzius' team expects the Fed to cut the benchmark interest rate by 25 basis points in September, November, and December;

In contrast, Morgan Stanley and Citigroup expect a 50 basis point rate cut in September.

The Goldman report states: "Our forecast is based on the assumption that job growth will recover in August, and the FOMC will consider a 25 basis point rate cut sufficient to address any downside risks. If we are wrong, and the August employment report is as weak as July's, then there could be a 50 basis point rate cut in September."

Economists add that they are skeptical about the "risk" of a rapid deterioration in the US labor market. They say this because job vacancies indicate that demand remains solid, and there are no significant shocks causing a downturn.