Three months ago, Goldman Sachs was warning clients that the U.S. economy had a one-in-four chance of tipping into recession. The bank just cut that number by 10 percentage points, and the reason has nothing to do with anything the Federal Reserve did.Goldman Sachs chief economist Jan Hatzius lowered the bank’s 12-month U.S. recession probability to 15% from 25% in a note titled “Global Views: More Crude, Less Concern.” The new figure is not just lower than where Goldman stood a few months ago. It is lower than the 20% probability Goldman had assigned on the eve of the Iran conflict, before oil prices spiked in the first place.Why Goldman Sachs cut its recession probability to 15%Oil is doing most of the work here. The U.S.-Iran peace agreement has reduced the risk that energy prices spike again, and Goldman’s commodities strategists now see Brent crude settling near $80 a barrel by the end of 2026, Investing.com reported.”The easing of geopolitical risk, combined with lower energy prices and a robust labor market, has meaningfully improved the near-term growth outlook,” Hatzius wrote.The 15% figure puts Goldman back at what the bank calls its long-term norm for recession probability. Goldman stressed the risks still run in both directions, TheStreet reported. Oil flows through the Strait of Hormuz could recover more slowly than expected if tensions return, or a near-term glut could develop if supply comes back online faster than the market can absorb it.Related: Goldman Sachs revamps recession odds after oil shock fadesThe reversal looks even sharper next to where Wall Street stood just months earlier. At the height of the conflict in March, CNBC reported that Moody’s Analytics had pushed its recession model to 48.6%, Wilmington Trust to 45%, and EY Parthenon to 40%.Goldman itself had raised its own estimate to 30% at the time. Its new 15% reading is now the lowest of the major forecasts that were circulating just three months ago.What Goldman Sachs said about U.S. growth for the rest of 2026Goldman nudged its second-half 2026 GDP growth forecast up to 2%, citing lower gasoline prices, higher real household income, AI-related equity wealth, and solid corporate capital spending. The bank is not calling for a strong rebound. It is calling for a less fragile economy than the one it was modeling three months ago.Consumer spending is the soft spot in the forecast. Goldman expects real consumer spending growth of just 1.5% as temporary tax-related support fades through the year.More Economy:JPMorgan sends another message on strait of Hormuz, oil pricesWarren Buffett has a message on energy prices for all AmericansGoldman Sachs sends strong message on next Fed rate cutThe labor market also looks weaker beneath the surface than the lower recession odds might suggest. Goldman expects payroll growth to slow from a recent three-month pace of 188,000 to just below the bank’s estimated breakeven level of roughly 60,000.”Geopolitical tail risks haven’t disappeared entirely,” Hatzius noted, adding that the durability of the peace deal and global demand conditions will determine whether the improved outlook holds.
Lower recession risk does not mean Goldman thinks inflation is solved.LordHenri/Getty Images
What this means for inflation and the Federal ReserveLower recession risk does not mean Goldman thinks inflation is solved. The bank sees core CPI averaging just 0.17% month over month over the next three months, a number that would support easing price pressure, though Goldman flagged that core PCE, the Fed’s preferred gauge, could prove stickier.The Federal Reserve held its benchmark rate at 3.50% to 3.75% at its June meeting. Policymakers signaled that a rate increase remains possible later in 2026, even as Goldman maintains its base case that the Fed will not raise rates this year. Goldman and the Fed are not reading the same data the same way, and that disagreement is part of why this revision is not the all-clear signal it might look like at first glance.Gold got the same treatment. Goldman cut its December 2026 gold price forecast by $500 to $4,900 an ounce, citing lower expected inflows into gold ETFs and a Federal Reserve environment that looks more hawkish than gold investors had been pricing in.What the lower recession risk means for investorsStocks generally like it when recession odds fall. Earnings estimates get easier to defend, and the market spends less time worrying about default risk and more time worrying about growth.But Goldman’s forecast describes a slow-growth economy. That kind of backdrop tends to reward a narrower group of stocks. Companies with pricing power, durable earnings, and clean balance sheets are typically better positioned than cyclical names that need a broad economic acceleration to perform well.Goldman raised recession odds to 25% when the Iran conflict pushed oil prices higher, then cut them back below where they started once the peace agreement took hold. That is how fast Goldman’s own forecast has moved this year, and it is the part investors should pay closest attention to. The current 15% reading is Goldman’s best estimate today, not a number that will hold if energy markets or labor data turn again.Related: JPMorgan doubles down on economy, inflation outlook