No Recession? Economists Are Now Predicting Brighter Days Ahead: New Survey Reveals Why

The future of the U.S. economy seems to be brightening, with economists predicting its ability to avert a recession, a recent survey by The Wall Street Journal has revealed.

What Happened: A report by The Wall Street Journal states that economists have reduced the likelihood of a recession within the next year from an average of 54% in July to a more hopeful 48%. This signifies the first drop below 50% since the middle of last year.

The optimism stems from three key dynamics: falling inflation, the halt in interest rate hikes by the Federal Reserve, and a resilient labor market paired with better-than-expected economic growth.

Economists anticipate a 2.2% rise in the gross domestic product (GDP) in Q4 2023, showing a significant upward revision from the former forecast of 1% growth.

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Even though the forecast for the following year has been slightly reduced, economists expect continued growth in 2024 and 2025. They predict a minor increase in the unemployment rate, but it will still hover above a historically low 4%.

Close to 60% of economists believe the Federal Reserve has concluded its current cycle of raising rates, after hitting a 22-year peak between 5.25% and 5.5% in July. Approximately half of the economists predict the Fed will start reducing rates in Q2 next year as economic growth decelerates.

Despite possible challenges such as shrinking savings and tightening credit conditions, most economists are confident in the Fed’s ability to achieve a “soft landing,” where inflation decreases without causing a recession. They forecast inflation to drop to 2.4% by the end of next year and 2.2% by the end of 2025.

Why It Matters: These optimistic projections come amidst a heated debate over the potential for a short recession or a prolonged stagnation, otherwise known as a “soft landing”. Manulife Investment Management’s chief economist, Frances Donald, recently suggested a temporary recession might be beneficial for investors, as it would spur the Fed to slash interest rates.

Interestingly, this optimism contrasts with concerns raised by America’s CEOs, who, in October 2023, predicted an 84% chance of a recession in 2024, while Fed officials insisted on a 0% likelihood. Despite these disparate views, the recent WSJ survey indicates a growing consensus among economists that the US economy will avoid an imminent recession.

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