The U.S. economy is showing signs of slowing inflation, but the threat of a recession still looms, according to a number of experts. High interest rates, a potential deterrent to consumer spending, could lead to layoffs and further economic instability. The consensus among experts is divided, with some predicting a recession in 2024, while others remain more optimistic.
Since March 2022, the Federal Reserve has consistently raised interest rates in an effort to combat inflation as the U.S. recovers from the pandemic. This aggressive approach, aimed at achieving a 2% inflation target, initially sparked fears of a severe economic downturn. However, recent positive economic data has led the Fed to withdraw its recession forecast for 2023, instilling confidence in a potential ‘soft landing’ for the economy.
Treasury Secretary Janet Yellen expressed this confidence at a Bloomberg event last month, stating, “you don’t really see any sign of recession here.” She added, “What we have looks like a soft landing with very good outcomes for the U.S. economy.”
Despite this optimism, uncertainty remains for 2024. Fed Chair Jerome Powell has made it clear that interest rate cuts are not currently under consideration. He emphasized the need for a monetary policy that can sustainably bring inflation down to 2%.
However, some experts are less optimistic about the economic outlook for 2024. Billionaire investor Ken Griffin, founder of Citadel, told Bloomberg that he anticipates a recession in the second quarter of 2024. He urged the federal government to reduce its deficit spending, although he expressed skepticism that this would occur in the lead-up to the 2024 presidential election.
UBS economist Arend Kapteyn and strategist Bhanu Baweja also predict a recession in 2024, expecting worsening economic conditions and a slowdown in inflation to prompt the Federal Reserve to cut interest rates. Similarly, Marc Lasry, CEO of Avenue Capital Group, and investor Rob Arnott believe that high interest rates and pressure on consumers and businesses could trigger a recession.
On the other hand, some experts remain hopeful. Bill Adams, chief economist at Comerica Bank, and UCLA economists predict a slowdown but not a recession in 2024. Bank of America CEO Brian Moynihan also expects the U.S. to avoid a recession, citing strong consumer finances and spending as reasons for his optimism. Goldman Sachs strategist Jan Hatzius also maintains a positive outlook, predicting just a 15% chance of a recession in 2024 and expecting inflation to continue to fall.
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