Is the Fed behind the curve, and could that set the stage for a U.S. recession ahead?

If there is a recession 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 this is Goldman Sachs exchanges.

Every month I speak with investors, policymakers, and academics about the most pressing market-moving issues for our top of my report from Goldman-Sacks 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 SOM 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 U.S. 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 due 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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