by AdvisorAnalyst.com Editorial Team
The US-Iran agreement has done more than ease geopolitical tension. According to Goldman Sachs Chief Economist Jan Hatzius, it has materially shifted the probability distribution for the American economy. "The agreement has led us to cut our 12-month US recession risk estimate further from 25% to the long-term norm of 15%," he writes, noting that this figure sits below Goldman's pre-war estimate of 20%, because "the labor market improvement since then indicates greater underlying resilience."
Goldman's commodities strategists now place Brent crude at $80 per barrel by year-end, with risks in both directions. On the upside, Iran's post-deal announcement that the Strait was closed again serves as a reminder that "oil flows might only recover slowly." On the downside, "a near-term glut could develop as oil is released quickly into a market that was already oversupplied before the war."
Growth: Real But Restrained
The recession risk reduction comes alongside a modest upward revision to H2 sequential GDP growth, now forecast at 2%. Hatzius describes "a positive sequential impulse to real income from lower gas prices, at a time when the economy continues to benefit from the AI boom via higher equity wealth as well as strong capex." But he is careful to bound the optimism. AI capital expenditure, he notes, "largely consists of goods that are imported from Asia and, in the case of semiconductors, don't even show up in GDP." Meanwhile, "real income defined on a cash flow basis is likely to slow in H2 as the impact of higher tax refunds and lower final tax payments in Q2 peters out," keeping real consumer spending growth at just 1.5%.
On the labor market, Hatzius flags a meaningful disconnect between headline payroll strength and a broader set of indicators. "Household employment has grown much more slowly than payrolls, the employment/population ratio has trended sideways to lower," and Goldman's updated slack tracker "has recently resumed its gradual loosening of the prior three years." Payroll gains are expected to slow from the recent three-month average of 188,000 to just below the firm's 60,000 breakeven estimate.
Inflation: Headline Relief, Core Stickiness
The collapse in gasoline prices should produce an outright decline in seasonally adjusted consumer prices in June. Hatzius expects core CPI to average "just 0.17% in the next three months as airfares decline on the back of lower jet fuel prices, hotel rates drop from their World Cup highs, and rent inflation reverses what looks like a high-side outlier in the Northeast in May." Core PCE will be stickier, however, driven by "ongoing upward pressure on imputed financial services prices from the equity market rally and price increases in software/accessories whose weight in core PCE is 30 times larger than in core CPI."
The Fed: Hawkish Signal, Dovish Baseline
The first FOMC meeting under Chairman Kevin Warsh delivered a more hawkish tone than markets anticipated. Half of the 18 participants penciled in at least one rate hike for the remainder of 2026, and the median 2027Q4 core PCE projection rose to 2.5%. Goldman's baseline, however, remains no hikes. Hatzius suspects many of the 2026 hikers are "nonvoting Federal Reserve Bank presidents, which would leave a majority of voters projecting unchanged or lower rates under appropriate policy." The projections may also be stale, he argues, "given the rapid improvement in the news from the Middle East and the plunge in energy prices over the past week."
Warsh's press conference introduced a more pointed communications shift. The Chairman stated that "financial markets perform best when they react to incoming data" and "work less efficiently when they ask the question 'how will the Federal Reserve react to that incoming information?'" Hatzius acknowledges the concern about markets becoming overly fixated on the Fed's reaction function, but warns that "a significant reduction in Fed transparency could make financial conditions and thus economic outcomes more volatile as market assumptions about the Fed's thinking become subject to fewer reality checks."
Global Divergence
Internationally, the picture is one of calibrated divergence. The ECB raised its deposit rate to 2.25%, but Goldman sees the balance of risks around a further September move tilting to the downside. The Bank of England faces a new political backdrop as Sir Keir Starmer has stepped down in favor of Andy Burnham, who "inherits an economy with more potential than widely appreciated." Goldman expects the MPC to ultimately cut Bank Rate to 3% in 2027, "well below market pricing." The Bank of Japan hiked to 1%, its highest level in thirty years, with two additional 25-basis-point moves projected through mid-2027, though "the biggest challenge for the Japanese economy remains fiscal sustainability." In China, April and May weakness reflects "a combination of the oil shock, payback for the consumer goods trade-in program, and the government's decision to slow fiscal spending after the strong Q1 GDP print," with a Q3 rebound expected as temporary drags abate. The structural concern persists: "the gap between domestic demand and exports continues to grow, which drives up the current account surplus with negative effects on many of China's trading partners."
On US equities, Hatzius notes that markets have absorbed the hawkish FOMC shock with resilience, supported by AI capex momentum and S&P earnings strength. The caution is valuation: "valuations of AI-related stocks are now high even relative to our optimistic views regarding the economic value that is likely to be created by AI over the next decade, so it is getting harder to justify further large gains."
Five Key Takeaways for Advisors and Investors
- Recession risk is back to baseline. Goldman's 12-month US recession probability has been cut to 15%, the long-term norm, supported by labor market resilience and the resolution of the oil shock.
- Growth is real but consumer-constrained. H2 GDP is tracking 2% sequentially, but real consumer spending growth of 1.5% reflects a fading Q2 tax tailwind and persistent cash flow pressure.
- The Fed is on hold, but uncertainty is rising. Goldman's no-hike baseline holds, but a less transparent Fed under Warsh introduces greater financial conditions volatility as a structural risk.
- Global central banks are diverging meaningfully. The ECB and BoE are more likely to cut than markets price; the BoJ is tightening gradually; and China is positioned for a fiscal-led Q3 rebound.
- AI equity valuations are stretched even on optimistic assumptions. Ongoing earnings strength and capex momentum support the trade, but Hatzius warns it is "getting harder to justify further large gains."
Footnote:
Hatzius, Jan. "Global Views: More Crude, Less Concern." Goldman Sachs Global Investment Research, Goldman Sachs & Co. LLC, 22 June 2026.
