Here’s What New Forecast from Banks’ Chief Economists Sees for What’s Ahead

WASHINGTON — A new forecast from the American Bankers Association’s Economic Advisory Committee (EAC), which is made up of the chief economists at major banks, sees the U.S. economy progressing along a soft-landing path.

“Recession risks have diminished, inflation continues to moderate, and employment gains remain robust,” the EAC said in releasing its new forecast. “A gentle easing cycle by the Federal Reserve will start around mid-year, facilitating trend-like GDP growth.”

The committee, composed of 16 chief economists from some of North America’s largest banks, sees real economic growth remaining healthy at around 1.7% for 2024 and 1.8% for 2025. Recession odds have diminished somewhat over the last six months, although policy and geopolitical risks keep them close to 30% both this year and next, the ABA reported.

Following what it called “considerable progress” over the past 18 months, the group expects inflation to continue gradually easing toward the Federal Reserve’s 2.0% target by the latter part of 2025.

The committee’s forecast is that core personal consumption expenditures (PCE inflation), the Fed’s preferred indicator, will be 2.4% at the end of 2024 before reaching 2.1% by year-end 2025.

‘Should be Celebrated’

“Last year’s combination of resilient growth and moderating inflation is unusual historically and should be celebrated,” Simona Mocuta, committee chair and chief economist at State Street Global Advisors, said in a statement. “The elements appear in place to extend a milder version of this in 2024, although we should not take this for granted. The risks to the outlook are two-sided but nuanced. The committee sees risks to the growth forecast as fairly balanced, but risks to the inflation forecast remain skewed to the upside.”

Additional Forecast

The bank chief economists also see:

• Evidence of modest labor market softening, “although this is merely a story of slower job growth rather than job losses. The pace of anticipated job creation is forecast to slow from over 139,000 per month in 2024 to just about 117,000 in 2025. The committee sees the unemployment rate reaching 4.1% by the end of 2024 and little changed thereafter –well within the range for a non-recessionary period.”
• The committee sees upside risk to the employment and growth forecast stemming from new information on population growth.
• The consensus view of the committee is that the Federal Reserve will begin cutting the target federal funds rate range in mid-2024, instituting three 25 basis point cuts before the end of this year.
• Despite anticipated rate cuts, the committee expects credit quality to continue to deteriorate somewhat over the coming year as high interest rates lift debt service costs. “However, sentiment around credit availability has improved at the margin relative to prior assessments,” the EAC stated. “The forecast anticipates bank consumer delinquency rates to increase slightly from 2.8% in 2024 to 2.9% in 2025.”
• Housing construction has improved since the middle of last year and that momentum should continue in 2024, according to the committee. The committee is forecasting housing starts to increase from 1.4 million in Q1 2024 to 1.5 million in Q4 2025. It also expects house price appreciation to be strong at the beginning of 2024 at 5.5% in Q1 2024, followed by a moderation of 2.0% annual growth for 2025.

 For the full EAC forecast, go here.