The U.S. economy witnessed robust growth in the latter half of 2023 and shows little signs of slowdown. However, despite such positive momentum, a significant portion of business economists anticipate a recession in the near future.
According to a survey conducted by the National Association of Business Economists (NABE), 24% of respondents predict that the United States will experience an economic downturn in 2024. Alarmingly, 2% of economists believe that a recession is already underway.
Interestingly, economists are presently more optimistic compared to their sentiments one year ago. In February 2023, the NABE survey revealed that 58% of economists anticipated a recession.
So, why does this lingering pessimism persist despite the resilience of the U.S. economy and a strong labor market?
A growing number of economists blame the Federal Reserve for maintaining high interest rates. The Fed has raised a key short-term rate to its highest level in 23 years as a means to tame inflation.
With inflation now slowing down to approximately 3% or even lower, high interest rates could impose a more severe impact on the economy. Increased borrowing costs are known to stifle economic growth.
Approximately 21% of Wall Street DJIA economists share the sentiment that the Federal Reserve is being overly cautious with its interest rates. This figure represents a notable increase from the 14% recorded six months ago.
The Concerns and Optimism of Economists
Economists are keeping a close eye on potential external shocks that could trigger a recession. Over the years, we’ve seen that events like a sudden surge in oil prices have had significant negative impacts on both the U.S. and global economies. However, other concerns have also emerged, such as a possible Chinese economic meltdown, escalating conflicts in the Middle East, and the potential instability surrounding the 2024 U.S. presidential election. These are among the major worries experts have highlighted.
Despite these concerns, economists are generally optimistic about the state of the economy. In the third quarter, we witnessed a substantial growth in gross domestic product (GDP) by 4.9%, followed by a rapid expansion at a 3.3% pace in the fourth quarter. Moreover, it is expected that first-quarter growth will exceed 2%, surpassing the U.S. economy’s normal speed limit.
One factor contributing to this optimism is the anticipation that the Federal Reserve (Fed) will respond to slowing inflation by cutting interest rates. Experts predict that the central bank will commence its rate reduction measures in the spring or summer.
However, economists remain skeptical regarding inflation reaching the Fed’s target of 2% by year-end. The majority believes it will likely settle around 2.5%. To put things into perspective, inflation has averaged less than 2% annually from 2010 to 2019, a rate deemed optimal for the U.S. economy.
In conclusion, economists recognize the potential risks posed by external shocks but maintain an overall positive outlook on the economy. With anticipated interest rate cuts by the Fed and steady inflation rates, there are reasons to be hopeful for continued growth and stability in the coming months.
