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Economists don’t want to get tied up in semantics.
Asked whether the U.S. economy will experience a recession this year, analysts are saying there is going to be a soft patch. Whether or not the economy falls into an actual recession — meaning two straight quarters of negative growth – is more uncertain and perhaps beside the point. The bottom line is 2024 is likely to be a lousy year for U.S. households.
Economists spoke to MarketWatch on the sidelines of the American Economics Association annual conference in San Antonio.
“Politically it will feel like a recession, whether there is or it isn’t,” said Glenn Hubbard, former top economist for President George W. Bush.
Even if there is a recession, it won’t be “anything that is other than mild,” Hubbard said.
Janice Eberly, a former economist at the U.S. Treasury Department in the Obama administration and now an economics professor at the Kellogg School of Management at Northwestern University, agreed there would be a slowdown, but saw “good chance we avoid a recession.”
Dana Peterson, chief economist at The Conference Board, a business think-tank, said that she expects a “short and shallow” recession that could start after April and perhaps last until September.
Peterson said that the cause of the recession is likely to be the high cost of credit and other factors that are a consequence of the Federal Reserve’s rapid interest rate hikes from March 2022 until last summer to combat inflation.
Because of the rise in the cost of capital, investment will stay weak, Peterson said. In addition, consumers are running up debt levels and labor markets are softening. The possibility of across the board spending cuts in Congress in April might hit the economy hard, she added.
Ellen Zentner, chief economist at Morgan Stanley, said she is sticking with her call of a soft landing , one she originally made in March 2022.
Although there is “real slowing” in the economy, businesses are still not laying off workers because of how hard it was to find them as the pandemic wound down, she said.
“Until businesses change the narrative of labor hoarding,” it is very difficult to forecast deeper trouble for the labor market and the overall economy, Zentner added.
Zentner said she expected the Fed to start to cut interest rates in June.
Karen Drynan, an economics professor at Harvard University, said recession odds were at 30%, double the normal level, but a soft landing was more likely.
She said she was worried the economy might get hit by a supply shock – like higher oil prices – just as the economy was softening. That means a weaker economy and renewed upward pressure on inflation. How the Fed would react was unclear, she said.
On Fed policy, economists said they didn’t expect the six rate cuts starting in March that the market is expecting.
Peterson of the Conference Board said she expects four quarter percentage point rate hikes from the Fed this year, as long as inflation keeps coming down.
“If inflation is not cooperating, the Fed is not going to cut that much,” Peterson said.
“I think the market is too aggressive is imagining how many rate cuts are coming – starting in March, I just don’t see that,” he said.
“Inflation is just too high. The Fed can’t afford an episode of declaring victory too soon,” Hubbard added.
The 10-year Treasury note
BX:TMUBMUSD10Y
closed at its highest rate since December on Friday.
