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Market pros and economists who have been predicting the dawn of a recession any minute now may have to go back and recheck their work.
Minutes of the Federal Reserve’s December meeting show that the central bank’s staff now don’t think the roughest patch for the economy will happen until late 2024 — a year later than in the previous forecast.
The mainstream view on Wall Street is that the sharp rise in interest rates engineered by the Fed in 2022 will push the economy into a recession soon.
The Fed staff explained they were hit with a lot of new information in November and December.
First of all, economic growth has been stronger than expected. And broad financial conditions were projected to be less restrictive than previously assumed.
Specifically, the effects of a higher path for equity values and a lower path for the dollar would more than offset a higher medium-term trajectory for interest rates, the Fed staff said.
But it won’t be all fun and games in 2023. Growth was expected to still “slow markedly” this year.
Looking even further ahead to 2025, the Fed staff now projects growth will remain sub-par.
“The new staff forecast suggests that the output gap won’t really open up until late 2024,” noted Omair Sharif, president of Inflation Insights.
That would explain why Fed officials raised their forecast for core inflation in 2023 to 3.5% from 3.1% in September, he said.
The Fed minutes also show that no Fed officials expect the central bank to cut interest rates this year.
Moody’s Analytics chief economist Mark Zandi told clients that the economy is going to suffer a “slowcession” this year, a protracted downturn that isn’t a recession.
