This was the summer of the soft landing.

So said Goldman, in a new note cutting their subjective 12-month recession odds for the US. Again. It was the third such cut in three months.

The call came directly from the digital pen of Jan Hatzius, or at least that’s how the bank attributed the note. At just 15%, the odds of a downturn are now “equal to the unconditional average recession probability calculated from the fact that a recession has occurred roughly once every seven years since World War II,” Hatzius said.

Goldman’s call was considerably more optimistic than consensus already. Now, it’s even more so. Bloomberg consensus puts the odds of a US downturn over the next year at around 60%.

Hatzius did say that some tracking estimates for Q3 “likely overstate the economy’s true momentum” given the proximity of student loan repayments and a possible “near-term hit” to housing from mortgage rates which reclaimed a seven-handle last month.

Still, Goldman reckons any slowdown will be “shallow and short-lived.” Hatzius pointed to a likely re-acceleration in real disposable income next year assuming job growth holds up and real wages rise commensurate with moderating inflation.

He also emphasized that Goldman “strongly disagree[s]” with the idea that the economy hasn’t seen the worst of any “long and variable lags.” This discussion dates to last year, when the bank suggested market participants and economists might be misinterpreting Milton Friedman.

“We think the drag from monetary policy tightening will continue to diminish before vanishing entirely by early 2024,” Hatzius wrote.

Goldman is similarly unconcerned with the jump in the unemployment rate last month given that it was entirely due to higher participation. And, even as job growth is resilient, the labor market continues to rebalance. “Both our jobs-workers gap and the quits rate have essentially returned to their pre-pandemic levels,” Hatzius went on. He did caution that there’s still ground to cover before wage growth on Goldman’s house tracker is down to levels that would “make Fed officials fully comfortable.”

As for inflation itself, Goldman talked a bit about various distortions before noting that the “sharp” slowdown in trimmed-mean measures suggests “underlying inflation may already be near the Fed’s target, despite the ups and downs of commodity prices, traditional ex-food and energy inflation and the core services ex-housing CPI or PCE measures.”

Hatzius said his confidence that the Fed is done with rate hikes has increased over the last several weeks. “We view Chair 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,” he wrote. “Moreover, the combination of a higher U3 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.”

All of that said, Goldman’s upbeat view on the likely trajectory for the US economy (and low subjective recession odds) lead the bank to believe that rate cuts will be “very gradual,” where that means 25bps per quarter commencing in Q2 of 2024.