How will the US economy fare in 2024? Don’t ask the prognosticator

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NoNovember brings with that the beginning of the end of the year. The first frost signals the arrival of winter. Thanksgiving marks the beginning of the holiday season. And from the hallowed halls of every major investment bank come pages and pages of “outlook” research. Their arrival means that this year’s economic story is largely written. Next year is what matters now.

image: The Economist

An investor who skims through it all often experiences a sense of déjà vu. For all the vanity of small differences, researchers will specify why their forecast for growth or inflation deviates by perhaps 30 or 40 hundredths of a percentage point from the “consensus” of their peers. (Your correspondent once wrote such views herself.)

Still, this year’s crop hasn’t brought soporific sameness. Goldman Sachs expects growth in America to be strong at 2.1%, about twice the level economists ubs anticipate. Some banks see inflation halving in 2024. Others think it will remain sticky, only falling to around 3%, still well above the Federal Reserve’s target. Accordingly, expectations for what the Fed will eventually do with interest rates range from essentially nothing to a 2.75 percentage point rate cut.

The differences between these scenarios lie in more than just disagreement over growth prospects. Goldman economists might think growth and inflation will stay hot, while economists ubs I think both will slow down sharply. However, Bank of America expects comparative stagflation, which combines only a modest reduction in inflation with a fairly sharp decline in growth (and therefore little movement in Fed interest rates). Morgan Stanley expects the opposite: a version of an “immaculate disinflation” world in which inflation can return to target without growth falling well below trend.

That every one of the outcomes described by banking economists appears eminently plausible is indicative of the sheer degree of uncertainty. Again, almost everyone was surprised by how hot inflation was, the rate of rate hikes necessary to do so, and then the resilience of the economy. It’s as if being repeatedly misplaced gives economic soothsayers more leeway: if nobody knows what’s going to happen, you might as well say what you really think.

The result is a confusing array of analogies. Economists at Deutsche Bank believe the economy is heading back to the 1970s, when central bankers tinkered with inflation. Those in ubs expect a ’90s recession’ – a slowdown in growth as rates fall, followed by a boom as new technologies drive productivity growth. Goldman’s Jan Hatzius thinks comparisons with past decades are “too simplistic” and can lead investors astray.

However, there is one similarity in the stories that economists tell. Many seem to think the worst is behind us. “The Last Mile” was the title of Morgan Stanley’s forward-looking document; “The hard part is over,” Goldman repeated. They can hope that this applies to both the economy and the difficulty of forecasting. By 2024, the contradictions in the US economy should resolve themselves. Hopefully, a consensus will be reached again in 2025.

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