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Economists Believe U.S. Economy Can Dodge Recession in 2024 Despite High Interest Rates

A majority of business economists express optimism regarding the U.S. economy’s ability to sidestep a recession in the coming year, even if the job market weakens due to elevated interest rates, reveals a survey published on Monday.

According to the National Association for Business Economics, only 24% of the 38 economists surveyed anticipate a recession in 2024 as more probable than not. Respondents include economists from diverse institutions such as Morgan Stanley, the University of Arkansas, and Nationwide.

These projections suggest a shared belief that the Federal Reserve can execute a delicate balancing act by using high interest rates to curb inflation without stifling overall economic growth.

Ellen Zentner, president of the association and chief U.S. economist at Morgan Stanley, stated, “While most respondents expect an uptick in the unemployment rate going forward, a majority anticipates that the rate will not exceed 5%.”

The Federal Reserve has raised its main interest rate to over 5.25%, the highest level since the early 2000s, up from near zero in the early part of last year. Elevated interest rates typically work to temper inflation by increasing the cost of borrowing and affecting prices for stocks and other investments. However, despite these measures, the job market has remained robust, with the unemployment rate sitting at a low 3.9% in October.

The surveyed economists generally expect inflation to continue slowing in 2024, although reaching the Federal Reserve’s target of 2% may take until the following year.

It’s worth noting that economists are forecasting a slowdown in price increases rather than a reversal, which would be necessary for items like groceries and haircuts to return to pre-2021 inflation levels.

The median forecast among economists suggests a 2.4% increase in the consumer price index in the final three months of 2024 compared to a year earlier. This would be less severe than the over 9% inflation experienced by U.S. households during the summer of 2022.

Opinions among economists vary on when the Federal Reserve might begin cutting interest rates, a move that can alleviate pressure on the economy and act as a stimulus for financial markets. While some economists anticipate the first rate cut in the initial three months of 2024, around a quarter of respondents believe it may not occur until the last three months of the year.