Goldman Sachs on Tuesday lowered its probability that a U.S recession would start in the next 12 months to 15% from an earlier 20% forecast.

The continued positive inflation and labor market data led to the cut, Goldman Sachs Chief Economist Jan Hatzius wrote in a note.

The investment bank said it expected reacceleration in real disposable income next year on the back of continued solid job growth and rising real wages.

It also noted the drag from monetary policy tightening will continue to diminish before "vanishing entirely" by early 2024.

U.S. consumer spending accelerated in July, but slowing inflation strengthened expectations that the Federal Reserve would keep interest rates unchanged in its policy meeting this month.

GS said it believed that Fed Chair Jerome Powell's "proceed carefully" approach signals that a September hike is "off the table" and the hurdle for a November hike is "significant".

Goldman added that it expected "very gradual" cuts of 25 basis points per quarter starting in second quarter of 2024.

(Reporting by Aniruddha Ghosh and Roshan Abraham in Bengaluru; Editing by Rashmi Aich)