The US economy is proving more resilient and inflation more stubborn than economists expected a few months ago and, as a result, the Federal Reserve (Fed) will keep interest rates high for longer, according to the latest search of The Wall Street Journal with economists.
On average, economists expect inflation, as measured by the annual rise in the consumer price index (CPI, its acronym in English), to end this year at 3.53%, up from 3.1% in the January survey. Inflation in March was 5%, the Labor Department said last week, the lowest in two years.
The midpoint of the US central bank’s current target for the Fed Funds rate now stands at 4.9%, and most economists see that midpoint rising to 5.125% by the end of June, implying another 25-point rise. basis in May or June. But while markets expect the Fed to cut rates by the end of the year, only 39% of economists surveyed agree – most do not see any rate cuts before 2024. That’s a change from January, when a slim majority expected a cut by the end of the year.
With inflation and interest rates persisting at higher-than-previously expected levels, economists estimate the same probability of a recession sometime in the next 12 months at 61% as they did in January. They expect a recession to be relatively shallow and short-lived, in line with other recent research. Economists see the contraction as likely to start in the third quarter of this year, after consensus in the January survey pointed to the second quarter.
Academic and financial economists who responded to the survey by Journal do not see the recent banking turmoil as contributing to the threat of recession. Among them, 58% said a crisis was largely averted, while 42% predicted more trouble to come.
Analysts expect stagnant growth this year, predicting that Gross Domestic Product (GDP) adjusted for inflation will rise by just 0.5% in Q4 2023 versus Q4 2022. Growth in 2024 shouldn’t be much better, by 1.6%.
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A so-called hard landing – in which high interest rates manage to reduce inflation, but at the cost of significantly higher unemployment and a recession – has not become more likely in recent months, but remains the most likely outcome, economists said. . Among respondents, 76% said there would be no soft landing, compared with 75% in January.
The pace of job growth has slowed in recent months but remains well above the pre-pandemic average in 2019. Employers hired 236,000 workers in March, a historically strong gain but the smallest in more than two years, according to the Department. of Labor. The unemployment rate dropped to 3.5%.
Economists expect that pace to slow considerably and turn negative later this year. They see the economy adding 12,000 jobs per month on average over the next four quarters, with job losses from Q3 2023 through Q1 2024. On average, they expect an unemployment rate of 4.3% at the end of 2023, lower than the 4.65% projected on average in the January survey.
The Wall Street Journal survey of 62 analysts was conducted April 7-11. Not all participants answered all questions.