Forecasts Show Improving Odds of Soft Landing, But Recession Risk Still Above Average
• Consensus forecasts for 2024 GDP growth have improved recently and now expect 1.3% growth, but forecasts can be widely inaccurate as evidenced by overly pessimistic 2023 expectations.
• The NY Fed recession probability model remains elevated at 52%, historically signaling an above-average recession risk in the next 12 months.
• The Fed is expected to begin cutting rates in early 2024 to counter economic restraint from declining inflation, aiming to engineer a soft landing and avoid recession.
• Stocks have rallied on hopes of a soft landing, but history shows over 40% of initial rate cuts are followed by a recession within 10 months.
• While odds of a soft landing may be improving given the Fed's policy pivot, recession risk remains above average according to the yield curve, warranting some caution.