A dim group of economists is still predicting a US recession in 2024 – although that was proven wrong this year.
Wells Fargo, Citigroup and Deutsche Bank are among those claiming a downturn is on its way, although their forecasts are noticeably more moderate this time around.
Analysts worry that higher interest rates — currently at a 22-year high of 5.25 to 5.5 percent — will finally pour cold water on consumer spending that has remained surprisingly resilient.
It comes after 2023 defied economists’ expectations by avoiding a recession thanks to a hot jobs market and strong GDP growth.
The S&P 500 has been on the rise — and as of today, it’s up 22 percent this year. The index was boosted by the so-called “Magnificent Seven” technology stocks including Apple, Amazon and Meta.
Likewise, Citigroup’s Andrew Hollenhorst said: “We believe the effects of higher interest rates are ultimately having the expected effect of slowing the US economy.”
Meanwhile, Sam Bullard, chief economist at Wells Fargo, said the expected rise in unemployment will lead to deflation
But fears are growing that higher interest rates and inflation will start hitting households that have now exhausted savings built up during the Covid-19 pandemic.
A Bloomberg poll of economists found that 32% now expect a recession within the next 12 months. The vast majority (49%) expected a “soft landing” in which there would be a slowdown in economic growth that would avoid a recession.
About 32% said there would be a “hard landing that avoids a recession” – meaning a major economic slowdown followed by a period of growth.
“It hardly qualifies as one, but yes, technically it would be a recession,” Brett Ryan, chief U.S. economist at Deutsche Bank, told the outlet.
“The risk, especially given the dovish Fed, is that we don’t see much of a slowdown. Financial conditions right now are improving considerably, and that represents an upside risk to our outlook.”
Likewise, Citigroup’s Andrew Hollenhorst expects a recession to be on its way.
“We believe that the effects of higher interest rates will ultimately have the expected effect of slowing the US economy,” he said. Bloomberg.
“We are seeing increasing signs in the labor market, including a rising unemployment rate and persistent unemployment claims, that suggest hiring will slow.”
The S&P 500 index also witnessed a noticeable rise, rising today by 21.76 percent over last year.
Nvdia, which makes computer chips, has enjoyed returns of nearly 250 percent this year and is the best performer in the S&P 500.
Meanwhile, Sam Bullard, chief economist at Wells Fargo, said the expected rise in unemployment will lead to deflation. He added that it would be “certainly moderate by historical standards.”
“We fully acknowledge that there is definitely a path in which recession does not appear: we continue to moderate,” he said.
Last year, economists made even clearer predictions, with the vast majority of them predicting a recession was on the horizon.
A December 2022 Bloomberg poll found a 70 percent recession in 2023.
Barclays Capital said that 2023 would be one of the worst years for the global economy, while Fidelity Investments described a US recession in the coming months as “possible.”
The Fed today kept interest rates steady for the third straight time – but signaled multiple cuts are coming in 2024.
The rise in borrowing costs has led to higher costs for mortgage holders, motorists and credit card users
Expectations were driven by rising inflation, which was hovering at 6.5 percent. Rampant inflation, in turn, sparked an aggressive campaign by the Federal Reserve to raise interest rates.
But the economy has remained surprisingly resilient, thanks to a strong labor market – which has kept the unemployment rate at a low of 3.7% – and strong consumer spending.
Inflation also slowed to a rate of 3.1% last month, which is close to the Fed’s target of 2%.
This means that many economists have more positive expectations for the new year.
Any suggestion that America could hit a recession next year is “ridiculous,” said Neil Dutta, director of economic research at Renaissance Macro Research LLC.
What’s their story? That higher rates have almost no effect at first and then suddenly the economy spontaneously combusts? This is inconsistent with empirical research, he said Bloomberg.