According to a new survey by The Wall Street Journal, economists from business and academic circles have lowered the probability of a recession in the United States within the next year to 48% from 54% predicted in July.
This is the first time since the middle of last year that the probability has dropped below 50%, indicating that economists have become more optimistic about the future economic outlook. Economists are optimistic for three reasons: continued decline in inflation, the Federal Reserve may stop raising interest rates in the future, and the labor market and economic growth are stronger than expected. BMO economists Doug Porter and Scott Anderson said in the survey:
The odds of a U.S. recession continue to decline as banking turmoil abates, strong labor market resilience and rising real incomes support consumer demand.
Economists expect that the gross domestic product (GDP) in the fourth quarter of 2023 will grow by about 2.2% over the previous year, which is a significant upward revision from the 1% forecast in the previous survey. In addition, the GDP forecast for next year has also been adjusted from 1.3% in the previous survey to 1%. At the same time, the unemployment rate is expected to rise next year, but it will remain at a level slightly above 4%, which is still a historically low level in macro terms.
As for whether the Fed will continue to raise interest rates? The survey results show that nearly 60% of economists said that the Fed has completed the current interest rate hike cycle, but some scholars predict that there will be one last wave of interest rate hikes. 23% of scholars expect the last interest rate hike to be in November, while 11% of scholars believe that the interest rate hike will be in December. In general, economists are confident in the Fed's ability to achieve a so-called "soft landing" (lower inflation without triggering an economic recession). 82% of economists believe that the current interest rate target range of 5.25% to 5.5% is strong enough to reduce the inflation rate back to the Fed's 2% target in the next two to three years.
Economists also expect the US Consumer Price Index (CPI) to fall to 2.4% by the end of next year from 3.7% in September this year, and to 2.2% by the end of 2025.
However, economists also warned in the survey that the recent escalation of the Israeli-Palestinian conflict will lead to higher oil prices, so there is still a layer of uncertainty in the outlook for the US economy in the coming months. About 81% of economists are also worried that the recent rise in bond yields to the highest level since 2007 may increase the possibility of a recession.