Experts at the Federal Reserve’s summer vacation in Wyoming at the base of the Grand Teton Mountains say they don’t think the U.S. economy will go into recession.
“The economy seems to be in good shape.” Karen Dynan, an economics professor at Harvard University, said, “In a broad sense, things look pretty solid.”
“Usually, there is some weakness going on underneath when we go into a recession.” She also said, “It just doesn’t feel that way now.”
Since early August, when weak July jobs data showed that demand in the job market had slowed down, people are more worried about a recession. In a note to clients, Michael Feroli, top U.S. economist at JPMorgan Chase, said that there were “hints of slowing labor income gains and rising layoffs.”
At the meeting in Jackson Hole, Wyoming, analysts said they were keeping a close eye on the job market. So far, the lack of activity suggests a slowdown, not a slump.
It was only 3.4% in April 2023, but by July 2023 it had gone up to 4.3%.
Alan Blinder, a former Vice-Chair of the Federal Reserve, said in an interview at Jackson Hole, “You have to slow the plane down to get a soft landing.” He said that the chance of a recession is about 15%, which is the same as always.
A big jump in the jobless rate has often been a sign of a recession in the past, but Dynan said this time is different.
Because so many new people have come to the country looking for work in the last few years, Dynan said, the jobless rate has gone up.
“I know some people think that when the unemployment rate goes up by a certain percentage point, you’re probably going into a recession,” Dynan said. “But right now, it’s not really clear that that rule of thumb holds.”
According to minutes from the central bank’s July meeting that came out last week, the Fed’s staff thinks that the jobless rate will slowly rise over the rest of 2024 and then stay about the same in 2025 and 2026.
Esther George, who used to be president of the Kansas City Fed, said in an interview that she was also not afraid about a recession.
George said, “I haven’t taken the job market as seriously as some people have.” She said, “I think the job market needed to loosen up from where it was.” “Once the unemployment rate starts to rise, it can pick up speed on its own.” It looks fine right now.
“The customer has held up so far,” George said.
Fed Chair Jerome Powell said in his speech on Friday that “the time has come” for rates to go down in September. It’s been four years since the last cut.
Powell didn’t say how much monetary easing was likely to happen. Most of the experts at Jackson Hole think that the federal funds rate will go up by 25 basis points. The central bankers might decide to cut rates by 50 basis points if the August jobless report is not good. The report is due out on September 6.
But there is worry about a recession in the credit market. Traders in derivatives markets have thought about the possibility that the Fed will cut interest rates a lot to help the economy.
Thomas Hoenig, who was also head of the Kansas City Fed, said he didn’t like the “one-way bet” in the bond market. He said there was a chance that prices would go up again.
“There is always a chance of a recession, but things are pretty stable right now.” He also said, “It’s not a must that we have a recession.” He warned that cutting rates too quickly could cause prices to rise again.
Jackson Hole economists believe the Federal Reserve will gradually lower interest rates. How low rates can go next is the big question.
This year, George said the Fed might cut rates by two or three quarter points each before taking a break to reevaluate.
She said, “I’d make a few cuts and then look around and see.”
Blinder said it wouldn’t surprise him if the Fed made some cuts “of the 50-basis-point variety.”
The Fed’s base rate is between 5.25% and 5.5%.
The Fed thinks that the base rate should be at 2.8% if the economy is stable, with inflation at 2% and growth of about 2%.
