Increasing numbers of forecasters are now predicting that the US economy will not suffer a recession this year, even in the face of US debt being downgraded.

Fitch Ratings downgraded its US debt rating on 1 August from the highest AAA rating to AA+, citing ‘a steady deterioration in standards of governance’. The downgrade comes after lawmakers negotiated up until the last minute on a debt ceiling deal earlier this year, risking the nation’s first default on government bonds.

Yet economists at several leading investment banks are now predicting a ‘no landing, no recession’ scenario in the US, including Goldman Sachs, Bank of America, and JPMorgan Chase.

This is instead of the so-called soft landing of a mild downturn and moderating inflation.

JPMorgan Chase economists scrapped their call for a recession in the US in early August, joining a growing number of forecasters who now expect the economy to avert the downturn that was once viewed as inevitable. The bank, which had previously said it expected a recession to begin in 2023, now sees continued expansion this year and ‘modest, sub-par growth’ in 2024 as the most likely scenario.

Michael Feroli, JPMorgan’s chief US economist, flagged the rising possibility of ‘healthy non-inflationary growth’ thanks to potential productivity gains from artificial intelligence and a pickup in employment data.

‘The probability of a US recession in the coming year has declined, as the risk of a disruptive debt-ceiling fight has disappeared and stress in the banking sector appears to be only a modest drag on the economy,’ Goldman Sachs economists said.

The investment bank’s forecasters say there’s a 25% chance of recession in the next 12 months, down from their earlier projection of 35% shortly after the failure of Silicon Valley Bank in March.

Economists and analysts have been predicting a downturn in the US economy for a more than a year, mostly due to high inflation and the steps policymakers have been taking to curb it. Officially, a downturn is defined as a decline in gross domestic product for two consecutive quarters.

Yet economic data continues to be supportive. The unemployment rate is still at ‘near all-time lows,’ Bank of America noted. The most recent (4 August) jobs report showed the unemployment rate was 3.5% based on new July data, ‘just above the lowest level since late 1969’. This has also led to speculation the Federal Reserve will hold rates at a higher level for longer.

Unemployment and other factors – growth in economic activity, wage and price pressures in the ‘right direction’ – prompted Bank of America to reassess its previous calls for a mild recession in 2024. The investment bank is weighting those baseline expectations for a soft landing at 45% to 50%, although it accepts that other outcomes are still possible.

‹ Previous2023-08-10Next ›