The latest quarterly survey by The Wall Street Journal paints a strikingly optimistic picture of the economic landscape, with both business and academic economists expressing a notable surge in confidence. This newfound optimism is underscored by a significant reduction in the probability of a recession within the next year, dropping from 39% in the previous survey to just 29%. Such a decline marks the lowest likelihood of recession since April 2022, highlighting a pronounced shift in sentiment toward economic stability and growth.
Economists are now markedly bullish about the trajectory of the U.S. economy, revising their growth projections upward from earlier forecasts. In January, expectations were modest, with forecasts anticipating sub-1% growth in each of the first three quarters of the year. However, the latest survey reveals a more optimistic outlook, with economists projecting growth to bottom out at a robust 1.4% in the third quarter. Moreover, the percentage of survey respondents anticipating at least one quarter of negative growth over the next 12 months has plummeted from 33% to just 10%.
Despite concerns stemming from the release of March consumer-price index data, which showed inflation running hotter than expected, economists remain steadfast in their positive outlook for the economy. Over the past year and a half, the U.S. economy has demonstrated remarkable resilience, defying expectations even amidst the Federal Reserve’s aggressive interest-rate-raising campaign.
Several factors have contributed to economists’ revised forecasts and newfound confidence. Federal infrastructure and semiconductor legislation, alongside an uptick in immigration, have bolstered economic growth and contributed to sustained expansion. While some economists caution against expecting a repeat of last year’s stellar performance, the prevailing sentiment is one of cautious optimism.
The Federal Reserve’s monetary policy has also undergone significant shifts since economists last felt this optimistic. With the fed-funds rate now between 5.25% and 5.5%, economists no longer anticipate a series of rate cuts in the near future. Instead, they project rates to end the year at 4.67%, implying only three cuts. This shift reflects economists’ confidence in the economy’s ability to withstand higher interest rates.
Looking ahead, economists envision a virtuous cycle of economic growth driven by strong productivity gains. Despite concerns about inflation remaining above the Fed’s target, economists believe that sustained productivity growth will support economic expansion while keeping inflation in check.
Overall, economists are bullish about the economy’s longer-term prospects, anticipating sustained growth above the long-term trend. While some risks remain, including the potential for more hawkish Fed policies, economists are optimistic about the economy’s ability to navigate these challenges and sustain its upward trajectory.
In summary, the latest survey findings reflect a significant shift in economic sentiment, with economists expressing newfound confidence in the resilience and growth potential of the U.S. economy.