Goldman Sachs has increased the chances of a recession in the USA after the recent turmoil in the banking sector. According to the firm's chief economist, the chances of a US recession now stands at 35%.
Earlier, the bank had a forecast of only a 25% chance that the US will go through a recession. They also pointed out that the uncertainty has increased in the short term amid the stress in the banking sector.
In addition, Goldman Sachs has also shared their research that suggests that the GPD growth is expected to be around 1.2%.
Just a week ago, around 3 banks (Signature Bank, SBV, and Silvergate Bank) had to shut down. Similarly, Credit Suisse from Switzerland is also going through trouble.
According to Goldman Sachs, the recent trouble in the banking system has increased the chances of an economic downturn. That's why the market is now expected the Fed to stop its rate hikes or revert to smaller rate hikes.
If we look at the FedWatch tool, there's a 75% chance that Fed will deliver a 0.25 bps rate hike. On the contrary, there's a 25% chance that Fed will leave the interest rate unchanged.
Earlier, the market was expecting the Fed to make a 50 bps rate hike but it appears that the collapse of SVB has changed all of that.
Goldman Sachs's chief global strategist believes that the policy tightening and liquidity withdrawal by Fed has put stress on the banking system.
It appears that we have finally started to see the threats that can arise from higher interest rates. In addition, it has also revealed that even big names such as Credit Suisse are not prone to financial trouble.
Overall, the chances of a US recession have increased by 10% after the recent trouble in the banking sector. If a couple of more banks fall due to the economic conditions, the recession chances will rise even further.