Economic Prospects in the US: A Gentle Slope, Not a Steep Plunge

With the US economy seemingly gathering pace and inflation inching back toward the Federal Reserve’s cherished 2% target, there’s chatter about a rather gentle descent. It’s all rather optimistic, according to a survey by the Financial Times and the University of Chicago Booth School of Business.

Economic Growth and Projections

The survey’s findings, based on the wisdom of 37 economists over a three-day period in mid-September, paint a hopeful picture. This year, the median estimate for gross domestic product (GDP) growth sits comfortably at 2.3%, with 2% anticipated for 2025.

Unemployment Rates

However, the unemployment rate is predicted to edge upwards to 4.5% by the year’s end, slightly above its current 4.2% level. Meanwhile, the central bank’s preferred inflation gauge, the core personal expenditures index, is expected to nudge down to 2.2% from July’s 2.6%.

A Surprisingly Smooth Descent

“It’s a shockingly smooth landing,” remarked Dean Croushmore, a seasoned economist from the University of Richmond and former economist at the Federal Reserve Bank of Philadelphia, during his interview with the Financial Times. “Fundamentally, things are still pretty strong across the board,” he added, summing up the optimistic outlook.

The Sahm Rule Indicator

Intriguingly, the closely monitored Sahm Rule recession indicator might not be the economic alarm bell it once was. This rule traditionally heralds a recession when the three-month average unemployment rate exceeds the low of the previous 12 months by half a percentage point. Economist Claudia Sahm remarked last year that it may not hold the same significance in the current economic climate.

Federal Reserve’s Potential Rate Cuts

Anticipation is rife that the Fed’s rate-setting committee will unveil a rate cut at the conclusion of its two-day meeting. According to the poll, a staggering 92% of economists foresee the Federal Open Market Committee trimming the benchmark lending rate by 25 basis points. A mere 5% anticipate a more substantial 50 basis-point cut, while a scant 3% expect no change or an increase.

Rate Cut Projections Table

For further context, do take a gander at the CME Group’s FedWatch Tool, which indicates that 100% of market participants are banking on a rate cut, with an even split between 25 and 50 basis-point reductions.

The US Presidential Election’s Fiscal Impact

Turning our gaze to the looming US presidential election, the poll also explored the anticipated fiscal impacts of key contenders’ platforms. A significant 70% of respondents believed that Donald Trump’s policies would lead to higher deficits. In contrast, only 11% foresaw Kamala Harris’ platforms causing an increase in deficits, while 19% didn’t expect any significant differences in their fiscal impacts.

Fiscal Impact Projection

Conclusion

All in all, while there’s still a degree of uncertainty, the overall sentiment leans towards a gentle landing for the US economy. With the Federal Reserve likely to cut rates and inflation easing, it seems the economic turbulence might not be as severe as initially feared. Quite intriguing times ahead, wouldn’t you agree?

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