President Joe Biden recently stated that the US economy is “strong now” and that he does not anticipate a recession. The election in 2024 will be viewed as a referendum on Biden’s handling of the economy. Positives include job creation and low unemployment, although increased inflation and the subsequent influence on interest rates over the last year have fueled fears of a recession.
Fed Chair Jerome Powell had also expressed optimism about the US economy and minimized the risk of a recession. Powell says the U.S. economy has actually been quite resilient, and while acknowledging that a recession is “certainly possible,” he said such an outcome is “not the most likely case.”
However, not everyone may agree with such statements. According to Evercore founder Roger Altman, the United States is on track for a more severe recession than Powell expects. The inverted Treasury yield curve and worrying indicators among small businesses were highlighted by the market veteran. According to Altman, a modest recession is the most likely outcome by the end of the year. According to experts, the chances of a recession are at their highest since the early 1980s.
Inflation has dropped dramatically from a high of 9.1% last summer, but it still stands at 3%, much above the Federal Reserve’s target of 2%. According to a former PIMCO senior economist, the June decline in inflation paves the door for the US economy to avoid a recession. The next FOMC meeting is on July 25-26 and the Fed is expected to raise rates by 25 bps each in July and September.
With inflation on the decline, a slew of positive economic signs could begin to emerge. This appears to be positive for the markets. “The US is now likely to pull off the perfect ‘soft landing’, with the world’s largest economy avoiding a recession as the latest inflation data comes in cooler than expected. This is the bullish analysis of Nigel Green, the CEO and Founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organisations.
Green says: “The US CPI data raises hopes that the Federal Reserve is going to be able to bring down inflation without steering the US economy into a recession. There had been legitimate concerns that with the aggressive monetary policy to cool red-hot inflation, the central bank might overtighten and push the world’s largest economy into a deep protracted recession. However, the battle on rising prices is being won, as the data suggests, meaning the pressure is off the Fed for future rate hikes.”
The markets appear to agree. On Wall Street, the S&P 500 and the Nasdaq closed at their highest levels since April 2022 following the US June CPI release. “Cooling inflation and a strong and resilient labour market suggest that no recession will come in 2023. We believe the Fed has pulled off the perfect soft landing. We are not out of the woods yet, but it is increasingly likely the US economy will not face a full-blown recession this year,” adds Green.