Inflation is decreasing and the U.S. economy is cooling off, with the Federal Reserve starting to lower interest rates. Experts have noted that the Fed is close to accomplishing a difficult-to-achieve 'soft landing.' This means the central bank is likely to lower inflation without pushing the economy into recession – a feat that has rarely been achieved, but some believe the Fed is nearing this outcome.
"Economically, the U.S. is neither in a recession nor is it on the brink of one as 2024 concludes," National Retail Federation Chief Economist Jack Kleinhenz declared. "The real picture is that the country is all set to secure a long-envisioned soft landing characterized by simultaneous slowing down of growth and inflation."
Recent data showed yearly inflation as of August was down to 2.2%, considerably off the peak figures of summer 2022, and more aligned with the Federal Reserve's annual target. To mitigate price pressures, the Fed kept interest rates at historically high levels for decades but is now reacting to decelerating inflation by lowering interest rates.
The next rounds of interest rate cuts could be crucial in deciding whether the economy stabilizes in the long-term or skids into recession, economists warn. Apollo Chief Economist Torsten Slok described the current economic situation as 'goldilocks,' warning against rapid rate cuts overheating the economy.
As per Goldman Sachs, the probability of an economic downturn in the upcoming year is a mere 20%. The renowned investment bank emphasized that the recent dip in the labor market won't likely hinder substantial economic growth. Although fewer jobs were added in August than predicted, the unemployment rate was reduced to 4.2%.
The Federal Reserve Bank of Atlanta's GDP Now model shows the economy likely grew 3.1%, despite elevated unemployment. Economists at Wells Fargo noted that the Federal Reserve is navigating a complicated scenario, saying that while labor market weakness calls for an interest rate cut, the robustness of retail sales and other economic sectors suggest a more cautious approach to reducing borrowing costs.