Job Market Booms, Inflation Falls, But Political Tensions Cast a Shadow

• Business economists and professionals largely dismiss the possibility of a US recession this year, attributing any potential slowdown more to external shocks like geopolitical disputes than local economic factors such as rising interest rates.
• Despite the expectation of continued economic growth, respondents to the NABE study anticipate annual inflation to exceed the Federal Reserve's 2% target through 2024, with concerns persisting even as inflation has decreased from its peak in June 2022.
• There's a growing consensus among analysts that the Federal Reserve can achieve a "soft landing," curbing inflation without triggering a recession, fueled by declining inflation rates and robust economic growth. However, concerns linger regarding the Fed's monetary policy, with some seeing it as overly restrictive, while geopolitical tensions and domestic political instability also weigh on economic outlooks.

Only 25% of business economists and professionals believe that this year will see a recession in the US. Furthermore, an external shock, like a dispute involving China, would probably cause any slowdown rather than local economic issues, such rising interest rates.

However, respondents to a National Association of Business Economics study that was made public on Monday still believe that through 2024, annual inflation would rise beyond 2.5%, which is more than the Federal Reserve's objective of 2%.

From a peak of 9.1% in June 2022 to 3.4% in December, inflation has decreased. However, despite rising borrowing rates, the economy unexpectedly continued to thrive, and firms continued to hire staff and refused to let them go.

The NABE survey indicates that expectations have increased that the Fed can accomplish a "soft landing," which would eliminate inflation without experiencing the negative effects of a recession. This is due to the combination of declining inflation and strong growth.

The Federal Reserve has indicated that it would be lowering rates three times this year and has ceased rising them.

Rising Concerns Among Business Analysts

However, a rising percentage of business analysts are concerned that the Fed is maintaining rates at an excessive level; in the NABE poll, 21% of respondents deemed the Fed's policy "too restrictive," an increase from the 14% who held this opinion in August. Nevertheless, 70% believe that the Fed is "about right."

Even if there isn't a full-scale war, respondents are concerned about the likelihood of a conflict between China and Taiwan: 63% see at least a "moderate probability" for such an outcome. Similarly, 97% see at least a moderate chance that Middle East conflict will push oil prices above $90 per barrel (from around $77 currently) and disrupt international shipping.

An additional 85% express concern about political instability in the US either before or after the presidential election on November 5.

Concerns over US government finances are also growing among the respondents; 57% believe greater discipline is needed in budgetary measures, which have led to a significant discrepancy between government spending and tax revenue. This is an increase from 54% in August.

According to them, supporting medium- to long-term growth (mentioned by 45% of respondents) and lowering the federal deficit and debt (42%), respectively, should be the top priorities of government budget strategy. Reducing income inequality is identified by 7% of respondents, placing it in a distant third place.