The latest survey indicates that, due to the expectation that the Federal Reserve has completed its interest rate hikes, most economists no longer anticipate a recession in the U.S. economy. However, they warn that the Israel-Palestine conflict will bring new risks...

In the latest quarterly survey, economists have reduced their expectations for an economic recession next year, dropping from an average of 54% in July to a more optimistic 48%. This marks the first time since mid-last year that their expectations for a recession have fallen below 50%.

BMO analysts Doug Porter and Scott Anderson stated in the survey, "The likelihood of a U.S. economic recession continues to diminish as banking turmoil subsides, and a strong rebound in the labor market along with rising real incomes support consumer demand."

There are three key factors driving optimism: the Federal Reserve will end interest rate hikes as inflation continues to decline, a robust labor market, and economic growth that has outperformed expectations.

Economists predict that the U.S. Gross Domestic Product (GDP) for the fourth quarter of 2023 will average a 2.2% increase compared to the previous year, a significant upward revision from the 1% growth forecast in the previous survey.

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Economists have revised their forecast for next year down from 1.3% in the July survey to 1%, but they expect the U.S. economy to maintain growth in 2024 and 2025, with the unemployment rate rising but hovering just above the historical low of slightly over 4%.

Economic growth and job creation in the first half of 2024 are expected to be weak. Economists forecast that the GDP for the first quarter of next year will only grow at an annualized rate of 0.35%, and 0.6% for the second quarter. They predict that employers will add an average of 42,500 new jobs per month in the first quarter and 16,700 new jobs in the second quarter, a significant slowdown from the expected 138,800 new jobs per month in the last quarter of this year, as businesses will feel the pressure from high interest rates.

Nearly 60% of economists say that the current interest rate hike cycle has ended after the Federal Reserve raised the benchmark rate to a 22-year high of 5.25%-5.5% in July. Additionally, about 23% expect one last rate hike in November, and 11% predict it will be in December.

About half of the economists expect that, as economic growth slows, the Federal Reserve will begin to lower interest rates in the second quarter of next year, with the unemployment rate rising from 3.8% in September to 4.3% by June next year.

However, overall, the latest forecasts indicate that there is a belief in the Federal Reserve's ability to achieve the so-called soft landing, where inflation declines without a recession. The vast majority, 82% of economists, say that the Federal Reserve's current interest rate target range of 5.25%-5.5% is sufficiently restrictive to bring inflation back to the Federal Reserve's 2% target level within the next two to three years.Economists predict that the inflation rate, as measured by the Consumer Price Index (CPI), will drop to 2.4% by the end of next year and to 2.2% by the end of 2025, with the CPI at 3.7% in September.

Deutsche Bank economists Brett Ryan and Matthew Luzzetti stated in a survey, "The likelihood of a soft landing has undoubtedly been strengthened in the past few months." "However, adverse factors such as the depletion of savings, tightening credit conditions, slowing income growth, and student debt repayment will have a greater impact next year," they added.

Economists have given a relatively high rating to Federal Reserve Chairman Powell's handling of monetary policy. Nearly half of them gave him a B, 20% gave him an A, and 20% gave him a C. Their main criticism was Powell's previous view that "inflation is temporary."

However, the economic outlook is not all rosy. Economists warned in the survey that recent developments may cast a shadow over the U.S. economic outlook in the coming months, such as the impact of the conflict between Israel and Hamas on energy prices.

About 81% of economists also said that the recent rise in bond yields to the highest level since 2007 has increased the likelihood of a recession, but it is not enough to offset other factors that reduce the likelihood of a recession.

Economists also expect yields to decline in the coming months. They forecast on average that the 10-year U.S. Treasury yield will close at 4.47% by the end of this year and drop to 4.16% by June 30 next year. The 10-year U.S. Treasury yield closed at 4.63% last Friday, down from 4.78% a week earlier.

This survey of 65 economists was conducted from October 6th to 11th, and not all economists answered all questions.