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WSJ Survey: Economists Say US Will Avoid Recession

By Charlie McCarthy | Sunday, 15 October 2023 11:53 AM EDT

Many economists now say the U.S. will avoid a recession, according to results of The Wall Street Journal's latest quarterly survey.

Results of the Oct. 6-11 survey also show that business and academic economists say the Federal Reserve is done raising interest rates and inflation will continue to ease, the Journal reported.

However, economists in the survey said that recent developments, most notably the Israel-Hamas war's effect on energy prices, could cast shadows on the U.S. economy’s prospects in the coming months.

Nevertheless, they lowered the probability of a recession within the next year from 54% on average in July to 48% — the first time the probability has been below 50% since the middle of last year, the Journal reported.

Optimism that the country will avoid a recession centers on three factors:

Inflation continuing to decline.
The Fed no longer raising interest rates.
A labor market and economic growth that have outperformed expectations.

"The probability of recession continues to recede in the U.S. as the banking turmoil subsides and strong labor market resilience and rising real incomes support consumer demand," BMO Economics economists Doug Porter and Scott Anderson said in the survey, the Journal reported.

The outlet reported that economists on average expect gross domestic product to increase 2.2% in the fourth quarter of 2023 from a year earlier. That's a sharp increase from the average 1% growth forecast in the last Journal survey.

The GDP is the value of all the goods and services produced in the country adjusted for inflation.

The latest survey shows that economists expect the economy to keep growing in 2024 and 2025, with a relatively low unemployment rate hovering just above 4%.

Also, the survey results reflect confidence in the Fed's ability to achieve a soft landing, in which inflation falls without a recession.

A whopping 82% of economists said the Fed’s current interest-rate target range of 5.25% to 5.5% is restrictive enough to bring back inflation to the central banking system’s 2% goal over the next two or three years.

The Fed is done raising rates in its current cycle of interest-rate increases, according to nearly 60% of economists. About 23% of economists expect the Fed’s final increase to come in November, and another 11% saying December.

Nearly half of economists expect the Fed to start cutting rates in the second quarter of next year as economic growth cools and the unemployment rate rises to 4.3% by June.

Economists say the consumer-price index (inflation), which was 3.7% in September, will drop to 2.4% by the end of next year and 2.2% by the end of 2025.

"Over the past several months, the case for a soft landing has undeniably strengthened," Deutsche Bank economists Brett Ryan and Matthew Luzzetti said, the Journal reported.

"However, headwinds such as depleted savings, tightening credit conditions, slowing income growth and return of student debt payments will weigh more appreciably over the next year."