U.S. Economic Outlook, August 2023

The Northern Trust Economics team shares its outlook for U.S. growth, employment, interest rates and inflation.

The longer a soft landing remains possible, the more likely it starts to feel. Falling odds of a recession are an optimistic signal, but the celebration is premature. The battle against inflation is not yet won and will be complicated by continued wage gains and the recent rise in energy prices.

After a slow start, the Fed has erred on the side of acting to fight inflation in this cycle. We do not expect them to pull back anytime soon. History offers several examples of the Fed cutting rates too eagerly, prompting reflation. Whether or not the hikes have concluded, rates are likely to hold at elevated, restrictive levels well into 2024. Over that prolonged period, higher borrowing costs will be felt more clearly, constraining growth, but hopefully not tipping the economy into recession.

Amid so much uncertainty, layoffs have been subdued and consumer spending has durably grown. These factors will help the economy keep its buoyancy and grow through the year to come.

Key Economic Indicators