Goldman Sachs on Tuesday slashed its target for the expected trough in U.S. benchmark interest rates by a full percentage point, citing an increased probability of recession and the likelihood of a prolonged period of sluggish performance for the U.S. economy.
The U.S. investment bank said it expects the Federal Funds rate to bottom out at 3 percent in the next six to nine months, down from an earlier forecast of 4 percent. Meanwhile, the unemployment rate is likely to reach 5.5 percent by the end of 2008, the bank said, up from the current rate of 4.7 percent.
Goldman also said chances of a recession are pushing up to between 40 percent and 45 percent. Even without an outright contraction, Goldman said U.S. gross domestic product growth will be well below trend for an extended period.