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CNN
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There was writing on the wall about a recession in 2023.
At this time last year, sky-high inflation was barely budging, and the Fed had no choice but to keep raising interest rates. The S&P 500 was doing well. bear market. layoffs, particularly in the technology industry; It was piling up As companies cut costs.
And best of all, the Philadelphia Phillies made it to the World Series. Historically scary signs for the economy Because every time a team wins, a recession begins.
However, the Phillies’ eventual loss to the Houston Astros last year was probably due to the economy benefiting from the apparent absence of a recession.
Truth be told, the reason it didn’t happen in 2023 has less to do with baseball and more to do with it. good policy and a little luck.
However, as with standard investment disclaimers, past performance is no guarantee of future results.
Fed Chairman Jerome Powell told reporters in December that the risk of a recession has increased since the Fed began its tightening cycle in March 2022. However, he said, “There is little reason to think that the economy is currently in recession.”
But even when the economy appears to be in the best shape it’s ever been, there’s always the chance of a recession next year, Powell added.
That’s because unexpected economic shocks, such as a global pandemic, can occur at any time.
Some economists believe that, barring any unforeseen events in the future, there is still a chance that the current situation will lead to a recession next year.
“The recession is only delayed, not fully gone,” said Kathy Bojancic, chief economist at Nationwide Mutual.
One indicator that Vostjancic has been closely monitoring is employment in the private services sector, excluding health care and education. The remaining sectors of private services (such as transport, leisure and hospitality) are more cyclical, meaning they are more susceptible to economic downturns. Therefore, studying the dynamics in the field will help you better understand the state of the economy, she said.
According to data from the Ministry of Labor, as of November 2022, the number of monthly employees in the private service sector, excluding healthcare and education, reached 92,000 people. but, November 2023 employment statistics represents a significant decline, with 22,000 new jobs in this sector.
Overall, employment growth has been strong over the past year, helping to keep the unemployment rate below 4%.
However, Vostjancic is not convinced that will carry over into the new year. She thinks the chance of a mild recession in 2024 is 65%, and she predicts the unemployment rate will rise to 5% by the third quarter. That’s nearly a percentage point higher than Fed officials’ median unemployment rate forecast for 2024, the paper said. Summary of the latest economic forecasts.
Bojančić expects the loss of income from job losses will likely cause consumers to cut back on spending and trigger a recession, he told CNN. And unlike in past years, consumers don’t have “extra fuel” to draw on because they’ve used up the savings they accumulated during the pandemic, he added.
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Heading into 2024, the economy appears to be holding up fairly well, and inflation appears to be moving closer to the Federal Reserve’s target. But that doesn’t mean recessions won’t happen.
There is also recession risk from the Fed itself. The central bank’s current high interest rates are aimed at slowing the economy in order to bring inflation closer to its 2% target.
But Louise Scheiner, a senior fellow at the Brookings Institution and policy director at the Hutchins Center on Fiscal and Monetary Policy, said economic growth could be hampered if inflation continues to recede and the Fed waits too long to cut rates. Ta.
That means it will be difficult for the Fed to decide. When lowering interest rates is reasonableEven if it is.
For example, Scheiner said interest rates take time to percolate throughout the economy, so the Fed’s actions to date have already slowed the economy enough to bring inflation closer to its target, even though it doesn’t show up in the data yet. He said that there is a possibility that If the Fed leaves interest rates unchanged, they could eventually overshoot and “accidentally” cause a recession.
On the other hand, there is a risk that the fight against inflation will become even more difficult.
Scheiner told CNN that if the Fed wants everyone to believe it is committed to bringing inflation down to 2%, “we need to engineer a slowdown.”
That could mean keeping interest rates higher for longer than investors currently expect, or raising them.
It’s not entirely impossible for the Fed to achieve a soft landing, a term used to describe a scenario in which inflation subsides without a significant rise in unemployment.
Over the past 60 years, over 11 interest rate hike cycles aimed at curbing inflation, this has happened only a few times: in 1964, 1984 and 1994. But that doesn’t mean another rate hike won’t or won’t happen. .
View this interactive content on CNN.com
David Mericle, chief U.S. economist at Goldman Sachs, is among those who believe in a soft landing.
“The hard part of the fight against inflation is now over,” he said in a November note, adding that “the conditions are in place for inflation to return to target and the worst blows from monetary and fiscal tightening are well behind us.” he added.
He said there was “good reason to be concerned” about last year’s recession, but “we don’t think the risks are particularly elevated at this point.”
The unemployment rate remains near historic lows. Millions of jobs still available“I would be surprised if the labor market suddenly deteriorated,” Mericle told CNN.
His team sees only a 15% chance of a recession over the next 12 months. He calls this the “historic unconditional average,” meaning he believes there is at least a 15% chance of a recession in any given year. But when inflation was near its peak during the banking turmoil that began in March 2023, economists at Goldman Sachs saw a 35% chance of a recession over the next 12 months.
They revised their forecasts downward from June as inflation continued to improve, the labor market became more balanced and banking stress eased.
Mericle said there was no “obvious” trigger for a recession, but it was likely “some kind of unexpected shock to the economy.”