Goldman’s COO – ‘Mini Stagflation Possible, No Recession’

The U.S. may yet avoid a recession, but it still faces the possibility of “mini
stagflation,” according to Goldman Sachs Group Inc.

The bank’s president and chief operating officer, John Waldron, said that “this is the best-forecast recession that hasn’t happened yet and may not happen.” “I often ask myself late at night, can we are we really going to have a recession with 3.5% unemployment? It seems unlikely.”

One outcome the firm is bracing for is a “mini stagflation scenario.” “It won’t
be called a recession, but it won’t feel good,” because “it can go on for a while when you
just have slow growth.”

Many economists are predicting a recession as the Federal Reserve aggressively raises interest
rates to slow the economy and counter rising inflation. US
companies announced more layoffs in the first five months of 2023 than all of last
year, and US jobless claims jumped last week to the highest level since
October 2021.

A still strong labor market will make it difficult to bring down inflation, which is the main reason John Waldron is considering the stagflation scenario. – Slowing economy and high inflation. Next week we will see if this scenario still holds weight, with US inflation data due on Tuesday. Forecasts are for a decline in data, which may take some of the weight off John Waldron’s idea. However, PCE data, the Fed’s preferred gauge, showed a rise in the latest reading, which is the main culprit for these concerns for now.

In a period of stagflation, markets cannot perform as well as they have in recent months. In such a case, it will take more time before the bear market ends and drastic measures by the Fed, which will suppress the economy even more.