Wall Street economists are growing more upbeat about US economic growth while acknowledging that it may require interest rates to stay higher for longer, in line with recent projections by the Federal Reserve.
Gross domestic product is expected to advance at an annualized 3% rate in the third quarter, reflecting stronger consumer spending and private investment, according to the latest Bloomberg monthly survey of economists. That compares to the 1.8% pace projected in August and is six times the growth rate forecast at the start of the quarter.
At the same time, a surge in oil prices in the past month will make the path to tame inflation even choppier. Respondents see the personal consumption expenditures price index — the Fed’s preferred inflation gauge — running at a faster pace in each quarter through the end of next year, compared to last month’s survey.
However, their projections for the core measure that strips out food and energy prices were largely unchanged.
The survey results follow updated economic projections from the Fed, which showed last week that officials also see stronger near-term growth. But policymakers and economists don’t see the momentum lasting as high borrowing costs, an impending government shutdown and the resumption of student-loan payments muddy the outlook.
Two-thirds of the 74 economists surveyed by Bloomberg submitted their responses after the Fed’s policy meeting last week, in which the central bank held interest rates steady but signaled another hike is possible. Officials also forecast fewer rate cuts than previously anticipated in 2024, which economists mirrored in the survey.
‘Mild Recession’
“We expect a mild recession to unfold” in the first half of 2024, said Kathy Bostjancic, chief economist at Nationwide Life Insurance Co. “The Fed’s reinforced higher-for-longer rate outlook supports our call as corporations and consumers will increasingly be negatively impacted by borrowing rates that linger higher.”
Despite multiple recession warnings over the past year, the US economy keeps powering ahead. Economists in the survey see a 55% chance of a downturn in the next 12 months, the lowest reading in a year.
“There are upside risks to our near-term forecasts, given the recent strength in consumer spending and overall resilience of the labor market,” said Brett Ryan, senior US economist at Deutsche Bank AG. “That said, the economy is still likely to hit a soft patch next year, as several headwinds facing the consumer will pick up over the next several quarters.”
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out our podcasts.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
