Is Worst for the US Economy over?

Recession! Recession! Recession! – this is what we have been hearing from the past year in the US.  And now, many people are wondering what’s happening in the US economy. Is still there a chance of a recession or not? Is Worst for the US Economy over? Will there be more interest rate hikes? What will be the inflation rate ahead?

In a world characterized by economic uncertainty, the United States has been no exception to the relentless questions about the possibility of a recession. This article investigates the intricacies of the U.S. economy, considering soft and hard landings in the event of an economic downturn. It explores the past year’s predictions, the strength of the economy, and the perspectives of experts. Join on this journey to gain a better understanding of the current state of the U.S. economy.

Soft Landing and Recession

Before going further it is pertinent to know the definition of Soft landing and Hard Landing in recession.

Soft landing means a recovery from a period of slow growth without a recession. Economic indicators show a slowdown in growth but not prolonged contraction. A recession, typically followed by a broad recovery is known as a Hard landing.

Last Year, around this time, almost all of the policymakers, and analysts were talking about the poor U.S. economic outlook for 2023, with many of them predicting a chance of recession in the second half of this year. Some spoke about a soft landing while few economists predicted a Severe, Long and Ugly recession.

But when we see this year so far Nasdaq Composite’s first-half performance was its best in 40 years along with the S&P500 showing its best start this year since 2021. Though the stock market is not all for an economy it is one of the best indicators of it. Even if one sees GDP data – one of the main indicators of economic activity – it has increased at an annual rate of 2.1 percent (0.5 percent at a quarterly rate) in the second quarter of 2023. 

This shows the strength of the economy. And the Good News is most economists say that the US may avoid recession, at least this year. 

US Economy Outlook of CBO 

On September 14, the Congressional Budget Office (CBO) published the Economic Outlook for the US economy. Its projection table is below:

According to CBO’s forecast report, the growth remains positive. However, it is too slow to stop the rising unemployment (though only about 1 percentage point). It states that due to increased slack in the economy as well end to supply chain disruptions, Inflation will decline. As a result of a decline in inflation interest rates will also decline and monetary policy becomes less restrictive, says the Report. 

Inflation and Interest rate hikes 

On Thursday (i.e. 19^th October 2023), Fed Chair Jerome H. Powell, talked about the economic outlook. In his speech, he stated that “After peaking at 7.1 percent in June 2022, 12-month headline PCE (personal consumption expenditure) inflation is estimated at 3.5 percent through September. Core PCE inflation, which omits the volatile food and energy components, provides a better indicator of where inflation is heading. Twelve-month core PCE inflation peaked at 5.6 percent in February 2022 and is estimated at 3.7 percent through September.” 

Regarding the stance of monetary policy, he stated “The stance of policy is restrictive, meaning that tight policy is putting downward pressure on economic activity and inflation. Given the fast pace of the tightening, there may still be meaningful tightening in the pipeline.” 

In recent months, the financial conditions have tightened significantly and long-term bond yields are an important driving factor for this tightening, Powell said in his speech. 

Powell also stated that Geopolitical tensions are highly elevated and pose important risks to global economic activity. Fed will monitor the economic implications of these developments. 

His speech sends or shows a clear signal that the Fed is committed to bringing inflation to its 2 percent target. 

Is Worst for the US Economy over? – Our Perspective/Conclusion:

The U.S. economy stands at a crossroads, with a mixture of optimism and uncertainty. Despite the persistent concerns of a looming recession, recent economic indicators paint a relatively favorable picture.

Robust consumer spending is the key driver for the US economy in a stellar summer. The different expectations from Wall Street and Main Street along with lingering recession fears give a complicated economic picture. This makes policymakers’ job tougher. 

National Association for Business Economics survey found that around fewer respondents than in the previous survey expect a recession within the next 12 months, with most assigning a probability of 50% or less. 

The US economy had a strong labour market, and a rise in retail sales, for the sixth straight month, in September while industrial production touched its highest level in nearly five years in September. This strength of the economy will be put to the test in the coming months. 

Inflation is expected to end around 3 percent this year as projected by CBO as well as IMF in its Regional Economic Outlook. Many analysts, and research firms, including multilateral organisations have forecasted that next year the GDP will come down for the US economy. But, it is too early to say, however, it’s essential to remain vigilant and adaptable, adjusting financial strategies and risk management practices to respond to potential changes. The U.S. economy’s future may be uncertain, but resilience remains a defining characteristic, offering hope for economic stability in the coming months.

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