Is the Fed behind the curve and could that set the stage for a US recession ahead?

If there is a reception in the next year or so, it is a huge unforced policy error, right? And I'm much more concerned about that now than I have been in the past.

I'm Allison Nathan and report from Goldman Sachs research.

This month I'm taking a closer look at Fed policy and the U.S. economic outlook.

The most recent jobs report was much weaker than expected.

In fact, it triggered the Somme rule, which states that

when the unemployment rate's three-month average rises half a percentage point or

more above the last 12 months low, the U.S. is already in a recession. If that's the case, as it has been

in every U.S. recession since 1970, or if a recession materializes down the road, some pretty

sharp questions will be asked about Fed policy.

At Jackson Hole, Fed Chair Powell clearly signaled that the Fed was set to cut interest rates

at its upcoming September meeting.

But the Fed funds rate remains quite high, and with inflation readings having come down significantly,

some economists are wondering why the Fed hasn't started cutting already.

Our economists in Goldman Sachs research believe that the Fed will cut its benchmark

rate by 25 basis points in September, November, and December.

Compared to most, they're relatively unconcerned about recession

risk, putting 20% odds on a US recession in the next 12 months,

which they say would decline to 15%, the default risk of recession

at any point in time, if the August payrolls report do this week is

benign. They note that while the July jobs report was weak, other data are not

showing signs of recession. To find out more I spoke to three of the foremost experts on the U.S. economy and Fed policy.

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