Goldman Sachs Group believes that the Fed will face the arduous task of tightening monetary policy and cooling inflation without plunging the US economy into recession.

The main challenge facing the Fed is to narrow the gap between jobs and workers and to reduce jobs without significantly raising the unemployment rate by tightening policy, thereby slowing wage growth to a pace consistent with the 2 per cent inflation target, Jan Hatzius, chief economist of the Goldman Sachs Group Group, wrote in a research report on Sunday.

Meanwhile, the Hatzius expects the US economy to contract at about 35 per cent over the next two years.

Achieving a "soft landing" may be difficult because historically, the sharp decline in the gap between US jobs and workers has occurred only during recessions.

But Hatzius said a recession was not inevitable because the normalisation of labour supply and durable goods prices after the outbreak would help the Fed meet its goals. He said that many countries in the G10 group of 10 advanced economies have achieved a "soft landing". The group also includes Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland and the United Kingdom.

Hatzius said that of the 14 US austerity cycles since the second world war, 11 had recessions within two years, but only eight of them could be partly attributed to Fed tightening policies, while "soft landings" were more common in the near term. He estimates that the chance of a recession over the next 12 months is about 15%.

Economists have recently found that a recession in the United States is becoming more and more likely. According to a Bloomberg survey in the first week of April, 27.5% of people expect the u.s. economy to contract, up from 20% a month ago. They expect the consumer price index to average 5.7% in the last three months of the year, up from 4.5% before.

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