The US economy is heading for a soft landing, with expansion in place while inflation falls back to the Federal Reserve’s 2% target, according to economists polled by the Financial Times.
A soft landing means a steady decline in the pace of economic growth as it approaches recession but often avoids it. This decline is usually accompanied by attempts to reduce price levels (inflation) by raising interest rates, which reduces the ability of entities and individuals to borrow and thus spend, expand activity and perhaps avoid default.
Growth forecast
The US GDP is likely to grow by 2.3% in 2024 and 2% in 2025, according to the poll conducted by the newspaper in cooperation with the University of Chicago Booth.
Experts expect unemployment to rise to 4.5% by the end of the year, slightly higher than the current rate of 4.2% but still historically low, while the core personal spending index (the Fed’s preferred inflation gauge) will fall to 2.2% from 2.6% in July.
The survey results, which come days before a widely expected Federal Reserve policy meeting, suggest the U.S. economy is heading toward the central bank’s optimal outcome after a period of high borrowing costs: strong growth, low inflation and improved employment.
“It’s a shockingly soft landing,” said Dean Crowshore, an economist at the Federal Reserve Bank of Philadelphia for 14 years who participated in the survey. “Fundamentally, the indicators are still strong across the board.”
The most moderate forecast in the poll of 37 economists, conducted between September 11 and 13, found that a majority of respondents do not expect a recession in the next few years.
The optimistic view is closely aligned with that of the Federal Reserve, whose officials have consistently claimed that a recession can be avoided as inflation returns to target, the paper says.
The closely watched recession indicator is also likely to be off target this economic cycle. The so-called “contribution rule” signals the start of a recession when the 3-month average of the U.S. unemployment rate rises by at least half a percentage point above its 12-month low, but even the economist who coined the rule said its implementation may not mean what it did in the past.
“This may be the only case that breaks the contributory rule,” said Jonathan Wright, a former Federal Reserve economist who helped design the survey.
The Fed has made clear it does not want to see the labor market deteriorate beyond current levels, with Fed Chairman Jerome Powell saying officials “will do everything we can to support a strong labor market as we make further progress toward price stability.”
interest rate decision
The Federal Reserve is widely expected to cut interest rates in the coming days from the 5.25%-5.5% range – the highest in 23 years – that it has kept since last July.
More than 90% of economists surveyed believe the Fed will choose to cut rates by a quarter point, with 40% expecting a 0.75% or more cut this year, and by the end of 2025, more than 80% believe it will keep rates at 3% or more.
Swap traders are currently pricing in a roughly 50% chance that the Fed will cut by a large half-percentage point next week and cut by 1% this year.
Kroshure said he wouldn’t be surprised if the Fed opted for a larger cut next week, especially if officials believe they were too slow to ease monetary policy over the summer, but “a quarter-point difference wouldn’t be that significant,” he said.
The meeting next Tuesday and Wednesday comes just seven weeks before Donald Trump and Kamala Harris face off in the polls.
The two candidates have very different economic agendas, with former President Trump praising tariffs, corporate tax breaks and deregulation, while Vice President Harris has focused on tackling rising prices and raising taxes on the wealthy and big corporations to pay more.
