Goldman Sachs Says Even A Near-Default On US Debt Could Spark A Recession And Market Mayhem  

 

  • A full-blown debt ceiling crisis has the potential to stop the US economy in its tracks, according to the top economist at Goldman Sachs. “If there were any doubt about the US government’s ability or willingness to make interest and principal payments on time, that could have very, very adverse consequences,” Jan Hatzius, the chief economist at Goldman Sachs, told CNN in an interview.
  • The United States hit the debt ceiling last week, forcing Treasury Secretary Janet Yellen to make accounting manoeuvres to avoid breaching that $31 trillion borrowing limit. Economists and US officials have previously warned of dire consequences if the federal government exhausts the extraordinary measures used to avoid a default.
  • If Congress fails to lift the debt ceiling in time, Hatzius said investors will worry there is a chance of a missed payment on US Treasuries – which are “maybe the most important asset in the global economy.” Unlike many of its peers on Wall Street, Goldman Sachs is relatively bullish on the US economy, with Hatzius telling CNN that America will likely avoid a recession through the 2024 presidential election. However, a debt ceiling crisis is a key risk to that optimistic outlook.
  • Assuming the United States gets through the debt ceiling episode, Goldman Sachs is optimistic about the prospects for the US economy. “We don’t expect a recession,” Hatzius said, noting his firm sees a still-significant 35% chance of a recession, compared with the consensus on Wall Street of roughly 65%. “Our baseline is a soft landing.”
  • Goldman Sachs expects the labour market will continue to cool down, but only gradually. That deceleration, combined with the housing slowdown, unwinding of supply chain turmoil and impact from the war in Ukraine, should help bring down inflation without causing a downturn.

(Source: CNN