Recession Fades, Optimism Prevails: US Economy on the Rise

The recent predictions about the possibility of a recession are now fading away. According to Bank of America US Economist Michael Gapen, the outlook for economic growth this year and next has been revised higher, and there is no longer an expectation of a mild recession.

Bank of America’s team of economists now sees the Fed’s interest rate hike ending in a “soft landing,” where growth falls below trend in 2024 but remains positive. This shift in perspective is in line with growing optimism about the state of the US economy.

Even the Federal Reserve Chair, Jerome Powell, stated that the central bank staff no longer foresees a recession in 2023. Goldman Sachs also reduced its odds of a recession in the next 12 months to 20% from 25%, with its chief economist Jan Hatzius agreeing with Gapen’s call for “unspectacular growth” in the next phase of the US economy. Additionally, corporations like Caterpillar (CAT) are reporting that business activity is progressing better than initially feared.

Forward-looking indicators for the current quarter are also showing improvement. The Atlanta Fed’s GPDNow forecaster, which tracks gross domestic product in the US, increased its projection for the 2023 third quarter, now anticipating economic growth to accelerate to 3.9%. This would be the best quarterly performance since the fourth quarter of 2021.

Recent data has shown that the economy has grown at 2.0% or better for the last four quarters, indicating ongoing resilience despite earlier signals of a slowdown. Gapen emphasized that revisions to the data and recent information suggest this resilience.

Previously, there were expectations of an anticipated recession, but the recent increase in interest rates and stronger economic data have shown more resilience than expected. The Fed’s preferred inflation measure reached its lowest level in nearly two years, while wage growth was slow during the period from April to June.

The recent ADP Employment Report also indicated positive job growth in July, well above expectations. However, even with the projected stronger growth outcomes, BofA notes that the path to the Fed’s 2% inflation target is still far off. They predict another Fed rate hike in the September meeting, followed by a slower cutting cycle over the next several years, with the first-rate cut expected in June 2024.

There are two inflation reports before the Fed’s next meeting in September, and more progress on the inflation front could influence the timing of the next rate hike. But, for now, BofA’s view aligns with how the Fed sees the end of its rate hiking cycle, aiming for a “soft landing” and a return to the inflation target without significant job losses.

Source: Yahoo.Finance

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Alexander Stefanov

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