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“While I don’t think recession is now the most likely scenario, I think the probability of recession has been rising in recent months”
Those are the words of Abby Joseph Cohen, former chief U.S. strategist at Goldman Sachs, who discussed her forecasts for the U.S. economy over the next 12 to 18 months with CNBC’s “Squawk Box” on Friday morning.
While a recession may no longer be the base case for many investors and analysts, the likelihood of an economic downturn have actually been rising in recent months, Cohen said in a CNBC interview.
Cohen compared current economic conditions with 18 months ago when everyone was concerned about what would happen as the Federal Reserve started its campaign of raising interest rates to curb inflation, even as the economy held up well due to a strong consumer sector supported by savings from the government’s stimulus payments and the suspension of student loan repayments during the pandemic while the labor market remained healthy.
“But where are we now? The tailwinds quite frankly, have gotten weaker,” she said. “That doesn’t mean that we’re heading into a recession anytime soon, but I think we are in a situation where things are not quite as easy as they might have been 18 months ago.”
Cohen also thinks it will be “more difficult” to forecast the U.S. economy over the next 12 to 18 months as political issues during an election year may weigh on the outlook.
See: Congress returns to face shutdown fears — here’s what it means for markets
For example, if the Sept. 30 deadline for the Congress to pass a new federal budget deal is not met there is a chance of a government shutdown.
“Even though the Republicans in the Senate and the Republican leadership in the House are saying they’d like to come to terms and have a budget deal by the end of this month, there are a few Republicans in the House who say they’d like to create a little bit of friction,” Cohen said. “If we don’t have a budget deal and the government shuts down, there are all kinds of consequences that are very hard to quantify.”
Cohen pointed to problems associated with social security payments and how the rest of the world would view U.S. Congress which could be “somewhat dysfunctional again” after the debt-ceiling standoff earlier this year. “It could be pressure for dollar, it could be pressure on the Treasury, for reasons not having to do with the economy,” she added.
Funding for the federal government is set to run out by the end of September unless action is taken by Congress. With less than a month to go until the deadline, the White House last week called on Congress to pass a short-term “continuing resolution” to keep the government funded past Sept. 30, avoiding the fourth shutdown in a decade.
The last government shutdown occurred under former President Donald Trump from Dec. 2018 to Jan. 2019.
See: Government shutdown could hurt Republicans’ chances in 2024 election, analysts say
U.S. stocks ended higher on Friday as Wall Street managed to recover from four-session losing streak for the Nasdaq Composite
COMP.
The S&P 500
SPX
logged 1.3% of weekly decline, while the Dow Jones Industrial Average
DJIA
was off 0.8% and the Nasdaq dropped 1.9% for the week, according to FactSet data.
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