The chances of a US recession are now just 15% with the Fed probably done hiking rates, Goldman Sachs says

• There's now just a 15% chance of a US recession over the next 12 months, according to Goldman Sachs.
• The Federal Reserve is close to calling time on its war on inflation, according to the bank.

The odds of the US suffering a severe economic slump anytime soon have dropped to just 1-in-7 with the Federal Reserve close to calling time on its war against inflation, according to Goldman Sachs.

The bank said Tuesday that there's now just a 15% chance the US slips into a recession over the next 12 months, down from 20% previously.

Chief economist Jan Hatzius said Goldman Sachs had changed its outlook because it's increasingly confident that the Fed is done hiking interest rates, having lifted borrowing costs from near-zero to around 5.5% over the past 18 months.

"On net, our confidence that the Fed is done raising rates has grown in the past month," he wrote in a research note.

"We view Chair [Jerome] Powell's promise at Jackson Hole to 'proceed carefully' as a signal that a September hike is off the table and the hurdle for a November hike is significant," Hatzius added, referring to the central banker's speech in Wyoming last month.

In recent months, cooling inflation and the first signs of labor market weakness appear to have made it less likely that the Fed will press ahead with further interest-rate hikes.

The US Consumer Price Index rose just 3.2% in July, while last week's Non-Farm Payrolls report showed that unemployment crept up from 3.5% to 3.8% and wage growth fell from 0.4% to 0.2% in August.

Those economic data-points could help to convince some of the more hardline Fed policymakers that further tightening won't be necessary necessary, according to Hatzius.

"The combination of a higher unemployment rate, slower wage growth and – most importantly – lower core inflation should help the more hawkish FOMC participants get comfortable with the notion that they can keep the funds rate at its current level while assessing whether further hikes are needed," he said Tuesday.

"If the committee skips not only September but also November, the hurdle for restarting the hikes at a later point would probably rise," Hatzius added.