Interview
What’s ahead for the U.S. economy?
- The U.S. economy is projected to achieve a soft landing without a recession, with the 12-month recession probability lowered to 25% amid labor market rebalancing.
- Inflation is expected to decline to 2% by 2025, with core PCE reaching the high threes by year-end and low to mid twos by the end of next year.
- Shelter inflation is forecast to decrease by 2 to 2.5 percentage points from core CPI and approximately one percentage point from core PCE.
- Auto sector prices face deflationary pressure as production normalizes to pre-pandemic levels, while overall inflation expectations and business pricing intentions are expected to moderate.
- In 2023, inflation is projected to align with or slightly trail wage growth, coinciding with 3% to 4% real income growth and continued consumer spending accounting for roughly two-thirds of the economy.
- Banking stress is anticipated to cause moderate credit tightening that reduces GDP growth by roughly 0.4 percentage points, though it is not expected to trigger a recessionary shock.
- Tighter bank lending standards are not viewed as recessionary, though small businesses in rural areas face a disproportionate risk from banking stress.
- Risks include a potential rise in jobless claims and layoffs, as well as the possibility that wage growth and inflation remain stickier than expected, increasing the cost of disinflation.