A recession is becoming increasingly unlikely, according to the American Bankers Association Economic Advisory Committee, and the Federal Reserve is likely to start reducing interest rates in June.
The Federal Reserve will cut interest rates 25 basis points three times this year, according to the March 28 forecast from the committee of 16 chief economists from North America’s largest banks. Fed Chair Jerome Powell said earlier this month interest rate cuts might not be far away if inflation signals cooperate.
The rate cuts are expected to enable GDP growth of 1.7 percent this year and 1.8 percent in 2025. PCE inflation is expected to be 2.4 percent at the end of this year before falling to 2.1 percent by the end of 2025.
Employment gains remain strong even as inflation continues to moderate. The number of jobs created on a monthly basis is expected to fall to just over 117,000 in 2025 from 139,000 this year, with unemployment reaching 4.1 percent by the end of 2024 and remaining little changed in 2025.
“Last year’s combination of resilient growth and moderating inflation is unusual historically and should be celebrated,” said Simona Mocuta, committee chair and chief economist at State Street Global Advisors. “The elements appear in place to extend a milder version of this in 2024, although we should not take this for granted. The risks to the outlook are two-sided but nuanced. The committee sees risks to the growth forecast as fairly balanced, but risks to the inflation forecast remain skewed to the upside.”
Those projections came as the economy continued moving toward a soft landing. According to the EAC, policy and geopolitical risks are still keeping recession odds close to 30 percent through next year. The committee expects credit quality to weaken in the coming year as high interest rates raise debt service costs. Consumer delinquency rates are projected to rise to 2.9 percent in 2025 from 2.8 percent this year.
“While credit availability remains largely intact, the cumulative effect of still-high interest rates, softening demand, lower consumer savings and a mild uptick in unemployment will drive some deterioration in credit quality,” Mocuta said.
Housing starts are projected to increase to 1.5 million by the end of next year from 1.4 million in the first quarter of this year. House prices are expected to increase 5.5 percent this quarter, before falling to 2 percent in 2025.
“The good news is the housing recession is over,” Mocuta said. “The not-so-good news is a structural shortage of housing in the United States is keeping home prices elevated and affordability constrained.”