As part of Yahoo Finance's 2024 Investor Guide, Goldman Sachs Chief US Economist David Mericle weighs the risks that could derail the Federal Reserve's progress in the inflation fight. Though he predicts recession odds have eased to 15%, challenges remain to loom over the US economy.
Mericle notes encouraging disinflation trends, saying "the soft landing has gone from on track to largely here." However, two issues left him cautious — whether inflation could be tamed without a recession, and if "regional banking stress" could prompt a crunch on credit conditions.
Mericle says both concerns have abated with inflation clearly cooling and banking contagion effects more contained. Still, he warns "recession odds are never zero," and it would likely take a major "external shock" at this stage to destabilize the economy.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Video Transcript
RACHELLE AKUFFO: For more on what's in store for the Fed next year, we're joined by David Mericle, Goldman Sachs chief US economist as part of Yahoo Finance's 2024 investor guide. Thank you for joining me in this morning. So let's break down the Fed's fight here on the recession that either is or never was and the likelihood of a soft landing.
DAVID MERICLE: Sure. Look, I think in the last half year, things have gone very well. Inflation's has come down very sharply, it turns out, from the first half of this year running at about a 4% annualized pace to the back half, running at what we think will turn out to be a less than 2% pace. All of that has happened, of course, despite GDP growth growing above 5% annualized in the third quarter and looking fine in the back half of this year as well.
So I think that, you know, the soft landing has gone from on track to largely here in the sense that the underlying inflation trend now looks to be pretty close to 2%, and the labor market has rebalanced as well. If you look at many measures of labor market tightness, on average we're not in that different of a place than we were in 2019. All of this has happened a lot more quickly than we had anticipated over the last several months.
As the inflation data have rolled in, we've made some downgrades to our inflation forecast, and I'd say broadly the change is that rather than gliding into the mid 2s next year, which would have been a-- I think a perfectly good outcome, it now looks like instead we are sort of abruptly finding ourselves more or less at a 2% underlying pace.
AKIKO FUJITA: You said that you now specifically see only a historically-- historical average, 15% chance of a recession. As you see-- as you look to 2024, what would likely tip it in that direction?
DAVID MERICLE: Sure. So back in September, we cut our recession odds down to 15%, and the thought process there was basically that the two things that had worried us over the last couple of years, first this question of can we really solve the inflation problem without a recession, and then the question of will the regional banking stress produce a recessionary credit crunch, we felt like we had learned enough that those didn't really look like risks that were more serious than the risk you would have in any environment.
On the first question, inflation, we've made a lot of progress in reversing overheating, rebalancing the labor market, slowing inflation and basically fully normalizing inflation expectations. So at this point, I would say that does not look like the risk that it was in mid 2022.
On the banking stress, I think that was a perfectly valid thing to worry about in real time during the spring. Certainly could have evolved in a worse direction. But at this point, banks seem to have avoided worst case scenarios. They seem to be lending at a pace that certainly is down, but not any worse than you would have expected just based on the rise of interest rates, or at least not much worse. And non-bank lenders have also stepped in to lend a-- you know, to lend a bit more where the regional banks have cut back, which has softened the blow.
So at the time, those two issues, those two concerns had led us to raise our recession odds for the following 12 months to a peak of 35%, but back in September we brought that down to 15%, and we've left it there since because we feel like we have a handle on those problems, and they just don't look like elevated recession risks.
Going forward, what could go wrong next year? I think it probably at this point has to be something of an external shock to the economy. Of course, you know, recession odds are never zero. The last time I would have said that I didn't see any elevated risks on the horizon was late 2019, so that's a reminder that things that are maybe off the radar can always pop up, and that's why the odds are 15% and not something lower than that.
"soft" - Google News
December 19, 2023 at 01:28AM
https://ift.tt/1lGIhvT
Soft landing is 'largely here': Economist - Yahoo Finance
"soft" - Google News
https://ift.tt/rtu1WIU
https://ift.tt/XeEDlb1
Bagikan Berita Ini
0 Response to "Soft landing is 'largely here': Economist - Yahoo Finance"
Post a Comment