Bank economists: ‘Soft landing’ odds have improved but recession risks remain

The U.S. economy is likely to dodge a recession despite an expected loss of momentum in economic growth over the next few quarters, according to the latest forecast of the American Bankers Association’s Economic Advisory Committee, released today. The committee, composed of 14 chief economists from some of North America’s largest banks, sees real economic growth slowing from 2.1% annualized during the first three quarters of 2023 to less than 1% annualized over the following three quarters. Momentum then improves slightly in the latter part of 2024, although the pace of activity remains below potential.

While the median committee forecast does not include any quarterly contractions, considerable concerns about a mild recession remain. Recession risks center primarily around the delayed impact of monetary tightening, deteriorating credit availability and high credit costs, but also include event risks such as a prolonged federal government shutdown or renewed flaring of geopolitical tensions, according to the EAC. The group consensus is that near-term recession risks have come down but are still significant for 2024, approaching 50%.

Consistent with slowing growth, the EAC expects various measures of inflation to ease close to the Federal Reserve’s target. The committee’s forecast is that consumer inflation will decline from around 4% annualized over 2023 to just above 2% in 2024.

“The odds of the Fed achieving a soft landing look much better today than they did six months ago,” said Simona Mocuta, EAC chair and chief economist at State Street Global Advisors. “However, the battle against inflation is not yet won, so the Fed must remain vigilant. At the same time, there is a better balance between supply and demand across the board, in goods, services and labor markets. This helps the ongoing disinflation process.”