Goldman Sachs Cuts US Recession Risk to 15% After Iran Deal
Goldman Sachs has lowered its estimate of a US recession over the next 12 months to 15% following the agreement between the United States and Iran.
Chief economist Jan Hatzius said the deal reduced major downside risks facing the economy. Improving labor-market resilience also contributed to the more positive outlook.
Recession Probability Returns to Long-Term Average
The revised 15% probability matches Goldman Sachs’ long-term average estimate for a US recession.
It also sits below the 20% forecast published shortly before the conflict began. Hatzius attributed the difference to an improvement in labor-market conditions during the intervening period.
A stronger employment market should help support household incomes and consumer demand. Therefore, it may reduce the likelihood that the economy enters a significant downturn.
Goldman Raises US Growth Forecast
Goldman Sachs also increased its US economic growth forecast for the second half of the year to 2%.
Lower gasoline prices are expected to boost real household incomes. Consumers may therefore have more money available for other goods and services.
At the same time, the artificial intelligence boom continues to support the economy through higher stock-market wealth and strong capital expenditure.
Investment in AI infrastructure, data centres and related technologies remains an important source of business spending.
Consumer Spending Expected to Remain Moderate
Despite the improved outlook, Goldman does not expect a powerful acceleration in economic activity.
The bank forecasts real consumer spending growth of only 1.5%. This reflects the expected decline in support from the larger tax refunds that boosted household finances during the second quarter.
Therefore, economic growth may remain steady rather than exceptionally strong.
Falling Gasoline Prices Could Lower Inflation
Goldman Sachs expects seasonally adjusted consumer prices to decline in June as gasoline prices fall sharply.
Lower fuel costs should reduce headline inflation and ease some of the financial pressure facing American households.
The bank expects core consumer prices, which exclude food and energy, to rise by an average of only 0.17% per month over the next three months.
This would indicate relatively contained underlying inflation despite continued strength in the labor market.
Goldman Expects the Federal Reserve to Hold Rates Steady
Goldman maintained its forecast that the Federal Reserve will avoid raising interest rates.
The latest Federal Open Market Committee meeting delivered a more hawkish message than markets had expected under Chair Kevin Warsh. However, Goldman does not believe this shift will necessarily result in higher rates.
Around half of the policymakers projecting rate increases are presidents of regional Federal Reserve banks who do not currently hold voting positions.
Consequently, the more hawkish projections may not translate directly into an immediate change in monetary policy.
High AI Stock Valuations Create New Risks
Goldman Sachs also warned that valuations across AI-related stocks have reached elevated levels.
The bank remains optimistic about the economic value that artificial intelligence could create over the next decade. Nevertheless, current market prices already reflect a significant amount of that expected growth.
As valuations rise, it becomes harder to justify another large advance without stronger earnings, productivity gains or commercial adoption.
The AI boom continues to support investment and household wealth. However, expensive stock valuations may also increase the economy’s exposure to a potential market correction.
Kevin Warsh became Federal Reserve chair in May 2026, and Goldman has separately maintained an outlook of unchanged interest rates through 2026 despite the Fed’s more hawkish direction.
