Worries that the Federal Reserve will continue raising interest rates to tame inflation appear to be fading amid encouraging signs in the jobs market, says Goldman Sachs

Commenting on this, Goldman Sachs research chief US economist, David Mericle, said: “The puzzle of 2023 has been that we have indeed seen demand reaccelerate this year, but nevertheless, labor market rebalancing has continued in exactly the way you would have hoped.

“That’s been a bit of a stroke of good luck.”

The job market is rebalancing as people continue to look for jobs, US immigration runs higher than usual, and companies pull back on hiring, potentially because distortions from the pandemic are fading.

Mericle added: “It’s good news for the FOMC.

“It means that the strong demand growth we worried about at the start of the year actually hasn’t been particularly costly because rebalancing has continued anyway, and I think there are a lot of signs that inflation will fall quite a bit further.”

As a result, Goldman Sachs Research expects the Fed to pause rate hikes later this month and to start cutting rates in the second quarter of 2024.

And while a recent spike in interest rates is raising concerns about the consumer impact, the effect on GDP growth is largely in the past, Mericle notes.

As inflation cools and employment remains resilient, a US economic downturn is becoming less likely. Goldman Sachs economists cut their 12-month recession probability to 15%, down five percentage points from their prior estimate.

The forecast is far below the Bloomberg consensus of economists, which remains at 60%. Goldman Sachs research is also much more optimistic about US growth than most other forecasters. The economists see GDP growth averaging 2% through the end of 2024.