Most business economists believe that the US economy will be able to avoid a recession next year, even if the job market weakens due to high interest rates, according to a survey released on Monday.
Only 24% of economists surveyed by the National Association for Business Economics said they see a recession in 2024 as more likely than not. The 38 economists surveyed come from organizations such as Morgan Stanley, the University of Arkansas, and Nationwide.
These predictions imply the belief that the Federal Reserve can slow down the economy just enough through high interest rates to control inflation, without completely stunting its growth.
“While most respondents expect an increase in the unemployment rate in the future, a majority anticipate that the rate will not exceed 5%,” said Ellen Zentner, president of the association and chief US economist at Morgan Stanley, in a statement.
The Federal Reserve has raised its main interest rate above 5.25% to the highest level since the early 2000s, up from virtually zero early last year.
High interest rates work to slow inflation by making borrowing more expensive and negatively impacting prices for stocks and other investments. Typically, this combination slows spending and reduces inflation. So far, the job market has remained solid despite high interest rates, and the unemployment rate was at a low 3.9% in October.
Most of the surveyed economists expect inflation to continue slowing in 2024, although many believe it may not reach the Federal Reserve’s target of 2% until the following year.
Of course, economists are only expecting price increases to slow down, not reverse, which would be necessary for prices of groceries, haircuts, and other goods to return to pre-inflation levels from 2021.
The median forecast of the surveyed economists predicts that the consumer price index will be 2.4% higher in the final three months of 2024 compared to a year earlier. This would be milder than the over 9% inflation that US households experienced during the summer of 2022.
Expectations among economists are divided on when the Federal Reserve might start cutting interest rates, which can relieve pressure on the economy and act as a boost for financial markets. Some economists believe the first cut could happen during the first three months of 2024, while around a quarter of the survey respondents think it won’t happen until the last three months of the year.