Economists are cutting recession expectations! Is the Federal Reserve's interest rate cut schedule going to be delayed?

Economists are lowering their expectations for a recession.

According to business and academic economists surveyed by The Wall Street Journal,Inflation is slowing, the labor market remains strong, and the economy's resilience has reduced the probability of a recession in the next 12 months to 54% from 61% in the previous two surveys.

While the probability is still high compared to historical data, this is the largest month-on-month decline since August 2020 as the economy recovers from a brief but severe recession triggered by the epidemic. It reflects the fact thatEven as the Federal Reserve raised interest rates and inflation fell, the economy continued to grow。

In the latest Wall Street Journal survey, economists expect GDP to grow at an annualized rate of 1.5% in the second quarter, up sharply from 0.2% in the previous survey. They still expect GDP to contract eventually, but at a later and smaller pace than before. They expect,The U.S. economy will grow by 0.6% in the third quarter, compared with the previous survey's expectation of a 0.3% contraction.It contracted 0.1% in the fourth quarter, forecasters said.In 2023, GDP will grow by 1% year-on-year, double the previous forecast of 0.5% growth.

Nearly 60% of economists said that...The main reason for their optimism about the economic outlook is that they expect inflation to continue to slow.The Labor Department's consumer price index (CPI) rose 3% in June from a year earlier, well below the June 2022 peak of 9.1% and the lowest in more than two years. The Fed's preferred inflation measure, the PCE price index, which excludes food and energy, has also fallen to 4.6% annually from 5.4% in March 2022. Economists expect inflation to fall to 3.7% by the fourth quarter of this year, although that is still well above the Fed's 2% target.

Is the economic recession delayed?

manySociete Generale InvestmentEconomists began predicting a recession in the middle of last year, when persistently high inflation prompted the Federal Reserve to raise interest rates at its most aggressive pace in nearly three decades. Historically, sharply lower inflation has been accompanied by higher unemployment and economic downturns, so few economists thought this time would be different.

Sean Snaith, director of the Economic Forecasting Institute at the University of Central Florida, said that now,The path to a "soft landing" - reducing inflation without a recession - "is back on the table". "And at the beginning of the year, it seemed more like a pipe dream"Now, "the recession seems to be constantly being postponed," Mr. Snays said, lowering the probability of a recession to 45 percent from 90 percent in April.

On average, economists still expect the labor market to shed 10,551 jobs per month in Quarter 1, 2024, essentially unchanged from previous forecasts. But contrary to the April survey results,Economists no longer expect layoffs in the third and fourth quarters of this year.They expect employers to add jobs in the second and third quarters of next year, indicating that any recession will be mild.

Luke Tilley, chief economist at Wilmington Trust, said: "Inflation has slowed significantly and we think it will continue to slow because spending growth is slowing sharply and labour force growth is helping service providers."

However, according to a survey by The Wall Street Journal,This year's stronger-than-expected economic growth could also lead the Federal Reserve to maintain interest rates at a high level for a longer period of time.

Economists expect the median range for the federal funds rate to peak at 5.4 per cent in December, well above the 5 per cent forecast in the last survey, which suggested the Fed would raise rates by at least another 25 basis points.

More interest rate hikes, later rate cuts

The Federal Reserve left its benchmark federal funds rate unchanged at a range of 5-5.25 per cent last month, the first pause since March 2022 after 10 consecutive rate rises. Data from the federal funds futures market showed market participants widely expected the Fed to raise rates by 0.25 percentage points at its July 25-26 meeting.

Societe Generale economists are also delaying their estimates of when the Federal Reserve will finally start cutting interest ratesIn the latest survey, only 10.6% of economists expected a rate cut in the second half of this year, down from 36.8% in the previous surveyNearly 79% of economists expect the Federal Reserve to cut interest rates in the first half of 2024 as unemployment risesAbout 42.4% expect the first rate cut to occur in the second quarter of next year

Economists are relatively optimistic about the impact of the end of the government's moratorium on student debt payments during the epidemic, which allowed millions of Americans to avoid a large monthly debt bill for more than three years.

The resumption of student loan repayments is expected to have a relatively small impact this fall, with consumer spending growth expected to decrease by 0.2 percentage points on an annualized basis between the third and fourth quarters of this year.

Jay Bryson, chief economist at Wells Fargo, said, "We may see some moderation in spending growth through the end of the year as the resumption of payments on loans undermines the spending power of some households, but we do not expect the end of the policy to be broad enough to have a significant impact on overall U.S. household spending”。