Will there be a recession in the US in 2024? This is what the experts say

In 2023, inflationary pressure in the US economy began to soften, and unemployment remained at a historic low.

While price growth has slowed, the housing sector continued to drive the Bureau of Labor Statistics’ Consumer Price Index up, reaching 3.3 percent last year. Regarding unemployment, the country started with a rate of 3.4 and ended 0.3 percent higher at 3.7 percent. Inflation remains above the Federal Reserve’s target of two percent or less, but further tightening through increasing interest rates is not planned at this time. Low unemployment was paired with higher-than-expected consumer spending last year, contributing to further GDP growth.

A recession is typically defined using GDP growth, and when there are two quarters where growth is negative, most economists consider the economy in a recession. The preliminary GDP report, published by the US Bureau of Economic Analysis, estimates that in the fourth quarter of 2023, the GDP rose 3.3 percent, following an increase of 4.9 percent in the third quarter.

What are the big banks saying about the chance of a recession?

Early last year, various financial institutions predicted that the US economy could enter a recession. However, the tune has changed, many believe that the economy could avoid a major economic downturn. For instance, analysts at JP Morgan have predicted a slowdown in the US economy but that a recession will likely be avoided, which is very positive news for those with investment portfolios. The chance of a severe recession, which JP Morgan calls a deep recession, stood at 25 percent in December 2023. Additionally, economists at Goldman Sachs have put the chance of a recession over the next twelve months at 15 percent.

This forecast is based on the impact that higher interest rates have had on GDP growth. While a modest drag on growth is expected this year, there is still a strong likelihood that consumer spending will remain robust, according to the analysis by the financial giant. However, in a higher-rate environment, businesses are expected to slow down investment, leading to a decline in GDP growth below the levels that may have been seen in a low-rate environment.

The housing market, which has been a key driver of inflation, is expected to continue experiencing a steady one percent price increase.

The Fed to undertake annual stress test

To gauge the way major financial institutions would respond in the case of recession, the Federal Reserve carries out an annual stress test. On 15 February, the Fed put out a press release that this year, the scenario will examine the response from banks in the case that “U.S. unemployment rate rises nearly 6-1/2 percentage points, to a peak of 10 percent.” In addition to increases in unemployment, “severe market volatility, a widening of corporate bond spreads, and a collapse in asset prices, including a 36 percent decline in house prices and a 40 percent decline in commercial real estate prices,” will also be studied. The results of the stress test will be published in June.