Forecasters Expect 1% GDP in Foreseeable Future

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Forecasters Expect 1% GDP in the foreseeable future.

Three-quarters of the economists think the chance of a recession is a coin flip at most.

The National Association for Business Economists released its December 2023 economic outlook from a panel of 40 professional forecasters. Their take: 2023 will have seen stronger growth than they expected in October, but they think that growth will slow to 1% sometime between now and the fourth quarter of 2024.

A slowdown in growth, by the way, is not necessarily a recession. “Fewer respondents than in the October 2023 Outlook survey expect a recession within the next 12 months, with more than three in four assigning a probability of 50% or less,” said NABE President Ellen Zentner, chief U.S. economist, Morgan Stanley, in prepared remarks. “While most respondents expect an uptick in the unemployment rate going forward, a majority anticipates that the rate will not exceed 5%. Too much monetary policy tightness and broadening conflicts in Ukraine and the Middle East are cited as the largest downside risks for the U.S. economy.”

Looking at core inflation—looking at goods and services absent food and energy because their volatility makes it difficult to find trends—the forecasters largely expected it to continue slowing, but they doubted that it would hit the 2% level the Federal Reserve has been seeking before the end of 2024. The median forecast still sees headline CPI to reach 2.4% year over year by the fourth quarter of 2024.

If correct, that is a counter to market expectations of rate cuts in 2024, at least if the Fed keeps the ground that it has staked out. The central bank has made it clear that there won’t be rate cuts until inflation reaches that 2% level. Counting on a Fed retreat may be counterproductive and lead not only to disappointment but also to poor planning for the future.

But the panelists are largely convinced that even if 2% inflation isn’t in hand, there will be rate cuts. “More than two-thirds expect the [2% inflation] target will be reached in 2025 or later,” NABE Outlook Survey Chair Mervin Jebaraj, director, Center for Business and Economic Research at the University of Arkansas, says in prepared remarks. “Still, more than 80% of panelists believe interest-rate cuts will begin in 2024, with most expecting cuts to start in the second or third quarter of 2024. Expectations for the 10-year Treasury bond yield for year-end 2023 and 2024 are higher than in the October 2023 survey—at 4.6% and 4.1%, respectively.”


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