The Federal Reserve's 75 basis-point interest-rate hike last week has increased the risk of a recession in the US over the next year.
The investment bank's analysts, led by chief economist Jan Hatzius, said in a note Monday that the chance of a recession hitting in the next 12 months had risen from 15% to 30%.
They said the chance of a recession in the next two years had gone up to 50%.
The interest rate hike by the Fed last week was the largest increase in borrowing costs since 1994.
The central bank responded to the data which showed US inflation hit a 41-year high of 8.6% in May, which was much higher than expected.
Following the Fed's hike, investors have increased their expectations for the path of interest rates. The federal funds target range is currently between 1.5% and 1.75%.
Goldman said there had been a tightening of financial conditions. The situation in markets has worsened, with stocks falling and bond yields rising, in a way that can be expected to hurt economic growth.
According to Hatzius and colleagues, financial conditions have tightened further and now imply a larger drag on growth.
Goldman believes that wages will not spiral upwards in a way that will force the Fed to be more aggressive, so it doesn't think recession risks are higher than 30% this year.
Much of the pay gains in the US were due to one-off increases in wages. According to the bank, there are signs that pay is going to go down.
Many analysts think the US is headed for a recession in the next year or so due to the Fed's desire to stamp out inflation.
The US economy will tip into a recession this year according to a prediction by a leading Japanese investment bank. The Fed and government wouldn't step in with moreStimulus so the slowdown would be short.
Goldman thinks a recession is unlikely this year, but thinks there is a 64 percent chance of one over the next two years.
After another brutal week for stocks and a big rate hike by the Fed, are we close in on a market bottom?
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