Markets ‘calm’ as inflation shows signs of easing: Goldman Sachs executive
Goldman Sachs chief executive and personal financial manager Joe Duran argued there was a “high probability” that the United States would face a recession next year.
Speaking on “Varney & Co.” he also noted on Thursday that markets have “calmed down” after months of volatility, with inflation appearing to ease a bit.
The Labor Department revealed last month that inflation accelerated more than expected to hit a new four-decade high in June as the price of basic necessities remained extremely high.
The department said the consumer price index, a broad measure of the price of everyday goods, including gasoline, groceries and rents, rose 9.1% in June from to a year ago. Prices jumped 1.3% in the month-long period from May. Those numbers were both well above the headline figure of 8.8% and the 1% monthly gain predicted by economists at Refinitiv.
IS THE UNITED STATES ENTERING A RECESSION?
The data marked the fastest pace of inflation since December 1981.
Price increases have become widespread, with energy prices rising 7.5% in June from the previous month, up 41.6% from a year ago. Gasoline costs on average 59.9% more than a year ago and 11.2% more than in May.
The Goldman Sachs executive told host Stuart Varney that despite recent increases, “the inflation picture” is calming down. He said he hoped people were now “a bit more optimistic”, acknowledging that “it’s been a very tumultuous year so far”.
Duran pointed out that what happened in the markets at the start of the year was “very rare”, explaining that “about 6% of the time, over a six-month period, stocks and bonds go down”.
“And so traditional balanced portfolios got off to a much tougher start,” he explained.
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Markets experienced turbulence in the first half of the year as investors ingested economic data and factored in several rate hikes by the Federal Reserve as the central bank attempted to rein in lingering inflation.
Duran noted Thursday that typically “from the time the Fed starts raising rates, it takes about 30 months before there’s a recession.”
“It only happens 60% of the time; 40% of the time there is no recession,” he continued.
Duran added that while the U.S. economy has had two consecutive quarters of negative GDP, which is the technical definition of a recession, “there is enough strength” given that unemployment “is still very good.” and should “continue to be very good.”
The executive provided this insight the day before the release of the July jobs report.
Economists polled by The Wall Street Journal expect the US economy added 250,000 jobs in July, compared with 372,000 in June.
“And so I think it takes a while before the increased rate hikes kick in,” Duran told Varney on Thursday.
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He then argued that a recession is unlikely to occur this year, noting that he thinks the market will be around 5-10% higher by the end of the year, but “with some volatility”.
He did, however, say he believed there was “a high probability of a recession” next year, with a 40% probability over the next 12 months – rising to 65% over the next two years.