Recession expectations in the US economy have decreased
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With falling inflation, a still-strong labor market and the expectation that the Fed is coming to an end in raising interest rates, experts surveyed by the Wall Street Journal reduced the probability of a recession next year to below 50 percent for the first time in a year.
Due to the decline in inflation, the expectation that the Fed has come to an end in its interest rate increase cycle, the strong performing labor market and economic growth. USA Optimism about the economy is increasing.
Economists now think that the recession will be over, the Federal Reserve will stop increasing interest rates, and inflation will continue to fall.
According to the latest results of The Wall Street Journal’s quarterly survey, business leaders and academics reduced the probability of a recession within the next year from 54 percent to 48 percent. Thus, the probability of recession fell below 50 percent for the first time since the middle of last year.
“The likelihood of a U.S. recession continues to decline as banking turmoil subsides, strong labor market flexibility and rising real incomes support consumer demand,” BMO Global economists Doug Porter and Scott Anderson said in the survey.
2023 GROWTH EXPECTATION INCREASED
Economists also changed their growth expectations. Accordingly, the 1 percent growth expectation in the fourth quarter of 2023 was increased to 2.2 percent, while next year’s forecasts were reduced to 1 percent from 1.3 percent in the July survey.
Economists, who expect the country’s economy to continue growing in 2024 and 2025, expect unemployment rates to increase, but to remain slightly above 4 percent, which is a historically low level.
While economic growth and employment creation are expected to be weak in the first half of 2024, GDP is predicted to increase by 0.35 percent annually in the first quarter and 0.6 percent in the second quarter.
DID FED STOP INTEREST RATE INCREASE?
Nearly 60 percent of economists say the current rate hike cycle is coming to an end after the Fed raised the federal funds rate to a 22-year high of 5.25-5.50 percent. 23 percent expect the final increase to come in November, and 11 percent expect it to come in December.
About half of economists expect the Fed to start cutting interest rates in the second quarter of next year as economic growth slows and the unemployment rate rises from 3.8 percent in September to 4.3 percent in June.
Taken together, the latest forecasts suggest confidence in the Fed’s ability to achieve a so-called soft landing, in which inflation falls without a recession. 82 percent of economists believe the Fed’s current interest rate target range of 5.25 percent to 5.5 percent will bring inflation back to the Fed’s 2 percent target within the next two or three years.
Economists expect inflation, which was 3.7 percent in September, to decline to 2.4 percent by the end of next year and to 2.2 percent by the end of 2025.
“Over the past few months, the soft landing argument has undeniably strengthened,” Deutsche Bank economists Brett Ryan and Matthew Luzzetti said in the survey. “However, negativities such as depletion of savings, tightening of credit conditions, slowing of income growth and the return of student debt payments will be felt more clearly next year,” they added.
THE DANGER OF ISRAEL-HAMAS CONFLICT IN THE ECONOMY
Economists also warned in the survey that recent developments, such as the impact of the conflict between Israel and Hamas on energy prices, may cast a shadow on the outlook for the US economy in the coming months.
About 81 percent of economists said bond yields reaching their highest level since 2007 made a recession more likely, but not enough to offset other factors that make a recession less likely. Economists also expect yields to decline in the coming months.
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