Fed Economists See Soft Landing More Likely Than Recession

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Blame it on economic theory not matching reality, groupthink among forecasters, or political partisanship by opponents of the Biden administration. However, a year ago, much of the U.S. was convinced the country was in a recession or would be soon. The first two quarters of 2022 saw U.S. economic output contract at a 1.6% annual rate from January through March and 0.6% from April through June.

Inflation was spiking toward a four-decade high, housing investment had been falling sharply, and the Fed’s concerted campaign to slow growth and tame inflation was widely expected to wreck a long expansion that had been remarkably durable eventually.

Then on Wednesday, the Federal Reserve announced that its staff economists no longer foresaw a recession this year. That’s a significant course correction from the central bank’s staff economists, who had been steadily downgrading their outlook for the economy over the past year, shifting from increased worries about “downside risk” as of last autumn to citing recession as a probability as of the Fed’s last policy meeting in March.

Those revisions in outlook were prompted by the release of revised data on the actual gross domestic product, or GDP, the measure that economists use to gauge economic activity and determine whether a nation is growing or contracting. The new data on GDP show that growth has accelerated since the start of the year, as manufacturing and business investment rebounded after steep declines in the winter. Consumer spending also rebounded after being held back by a spike in oil prices, and inventories shrank less than initially thought.

This week, the International Monetary Fund upgraded its outlook for the United States to 1.8% growth for all of 2023. That’s still a bit below the 2.1% growth that the IMF had predicted for 2022 back in April, but it’s a sign that the economic recovery that began last summer is still ongoing.

The IMF upgrade also came on the heels of a government report that showed household wealth has risen sharply in recent years, with Americans adding a net of $2 trillion to their financial assets during the 12 months ending in June. That’s the highest increase in household wealth on record, though it reflects a significant portion of gains made by those already had financial assets. On the other hand, the vast majority of Americans do not have any accumulated wealth, and they depend entirely on their incomes to make ends meet.

Economists still expect the economy to slow this year as the Fed continues to raise rates, but they no longer see a recession on the horizon. That would be a significant relief for the millions of working families that depend on it for their paychecks and to support their kids’ college tuition bills. And it would be a relief to those who believe in the rule of law, which requires that every person is equal under the eyes of the court, regardless of party affiliation or political enemies.

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Nicole Kenny is a freelance writer and content creator with a passion for storytelling. Her work has been published in various online and print publications, covering topics ranging from travel and culture to ersonal finance and entrepreneurship. When she's not writing, you can find her hiking in the mountains or curled up with a good book. Nicole is also an avid traveler and amateur photographer.

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