More than 80% of FXTM CEOs predict a US recession in 2024, but Federal Reserve officials have changed their views

Only recently has the mood shifted as fears of a recession grew for much of last year amid sharply rising interest rates and market uncertainty.

Only recently has the mood shifted as fears of a recession grew for much of last year amid sharply rising interest rates and market uncertainty.

Given the resilience of the US economy, a growing number of investors see a growing likelihood of a "soft landing", in which the Federal Reserve raises interest rates to fight inflation without triggering a recession. However, many remain cautious.

US economic forecasts: Is a recession imminent?

The chart below shows the projections of Wall Street, Main Street, and senior management for the U.S. economy in 2024.In July, Federal Reserve staff announced that they would no longer predict a recession in 2024, a significant departure from previous predictions.

Although Federal Reserve staff continue to be optimistic about the outlook, the distribution of the yield curve between the 10-year and 3-month Treasury rates suggests a 61% change in the next 12 months for a recession. Historically, the yield curve has been a reliable predictor of recessions, and the model is based on a New York Fed model using data from 1959 to 2009.

At the same time, a Wolters Kluwer survey of economists revealed that their views are divided, with 48% of economists expecting a recession in the next 12 months.

According to the Conference Board survey, consumers are more cautious, with more than 69% saying a recession is likely next year.

However, some in America's top management have become more positive. Goldman Sachs recently cut its recession forecast to 15%, while Bank of America put it at 35% to 40%. On the other hand, 84% of CEOs are preparing for a recession in the next 12 to 18 months, down from 92% in the second quarter of 2023.

Bull market signals and bear market signals

One of the key factors that investors are closely monitoring is the impact of rising interest rates on the economy.

As far as the bull market is concerned, rising interest rates do not yet appear to have had a significant impact on consumer spending, although spending on non-essential items has slowed. Retail sales continue to be solid, with earnings at Home Depot, Walmart, Lowe's and other major retailers showing resilience. The main change that has occurred is that consumers are buying more affordable options.

However, consumers are increasingly relying on borrowing to spend.

Amid the pessimism, household debt hit a record high of $17 trillion in March, up 19% year-on-year. Rising interest rates have led to higher borrowing costs, which could impact household budgets. Meanwhile, corporate defaults accelerate in 2023 and are expected to continue rising.

Overall, the signals across the economy are mixed. Quantifying the full impact of high interest rates on consumers and businesses remains an open question.