Key Words: The chances of a U.S. recession are rising, says former Goldman Sachs strategist Abby Joseph Cohen

‘While I don’t think recession is now the most likely scenario, I think the probability of recession has been rising in recent months.’

— Abby Joseph Cohen

Those are the words of Abby Joseph Cohen, former chief U.S. strategist at Goldman Sachs GS, +1.93%, who discussed her forecasts for the U.S. economy over the next 12 to 18 months with the CNBC morning show “Squawk Box” on Friday.

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 told the show’s hosts.

Cohen compared current economic conditions with the situation 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 robust.

“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 thinks, she said, that it will be “more difficult” to forecast the U.S. economy over the next 12 to 18 months as political issues during a presidential election year may weigh on the outlook.

For example, if the Sept. 30 deadline for Congress to pass a new federal budget 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.”

See: Congress returns to face shutdown fears — here’s what it means for markets

Cohen pointed to problems such as the fate of Social Security payments and a diminution of the world’s view of the U.S.

Congress, she said, risks looking “somewhat dysfunctional again” after the debt-ceiling standoff earlier this year. “It could [put] pressure [on the] dollar, it could [take the form of] 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 before that deadline, the White House has 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 and ran from December 2018 to January 2019.

See: Government shutdown could hurt Republicans’ chances in 2024 election, analysts say

U.S. stocks ended higher on Friday as Wall Street managed a rebound, with the Nasdaq Composite COMP ending a four-session losing streak.

The Nasdaq, however, was saddled with a 1.9% loss for the wee, while the S&P 500 SPX logged a 1.3% weekly decline and the Dow Jones Industrial Average DJIA was off 0.8% over the four-trading-sessions week, according to FactSet data.

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