Stronger-than-expected data on jobs and the consumer has Goldman Sachs cutting its odds of a recession in the next year to 20% from 25%.

Goldman Sachs chief economist Jan Hatzius sits down with Yahoo Finance to give his insights into his call, the state of the consumer, the economic policies of the 2024 presidential candidates, and more.

Hatzius highlights three data points that powered his call: the retail sales data, recent declines in jobless claims, and second quarter earnings reports, which he described as "pretty encouraging." Hatzius adds that if the August jobs report "looks OK or better" he anticipates cutting the odds again, back down to 15%

So what does this mean for the Federal Reserve's rate cut path? Hatzius says, "The lower recession risk has strengthened our forecasts that they will cut by only 25 basis points at the September meeting...We're expecting 25 basis point cuts also in November and December for a total of 75 basis points of easing this year."

In addition, Hatzius comments on how the housing market has been impacted but may see some recovery: "I think housing is still soft. We saw that in the housing starts, numbers last week. We've been seeing it in the homebuilders index. However, I would expect that to gradually improve as interest rates come down. So that's one area where I do expect some improvement."

Watch the video above to hear what Hatzius says about the impact of generative AI on the labor market.

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This post was written by Nicholas Jacobino