"US Economy to Recede in Q3 Next Year... Soft Landing Possible Following China’s Economy"

Wall Street sign, Photo by Yonhap News

[Asia Economy Reporter Moon Hyewon] Amid growing concerns about an economic recession next year due to the aggressive interest rate hikes by the U.S. Federal Reserve (Fed), an optimistic forecast has emerged suggesting that the U.S. economy might achieve a soft landing.

According to the 2024 global economic outlook by Bloomberg Intelligence (BI), a research institute under Bloomberg, Chief Economist Anna Wong predicted that the U.S. inflation rate will gradually decline, with the Consumer Price Index (CPI) falling to 3.5% and the core CPI to 3.8% by the end of next year.

She also forecasted that the Fed will raise the benchmark interest rate to 5% in the first quarter of next year, maintain this level until the end of the year, and finally cut rates in the first quarter of 2024.

Earlier, on the 14th, the Fed raised the benchmark interest rate by 0.50 percentage points at the Federal Open Market Committee (FOMC) regular meeting. The U.S. benchmark interest rate reached 4.25?4.50% annually, the highest level in 15 years.

Economist Wong anticipated that if a recession occurs, it would be in the third quarter of next year, with the U.S. real Gross Domestic Product (GDP) potentially decreasing by 0.9% in the second quarter and the unemployment rate rising to 4.5%.

However, she emphasized that a recession next year is not a foregone conclusion. If certain conditions are met, the U.S. economy could avoid it and achieve a soft landing.

She predicted that if China's 'With Corona' policy leads to slowed economic growth and decreased demand, causing raw material prices to fall, the U.S. inflation rate would also sharply decline.

The recession itself could be a variable. If the recession is too severe, the Fed might succumb to domestic and international pressures and eventually lower interest rates.

Additionally, with uncertainty about how China's end of the 'Zero Corona' policy will affect its economic growth next year, BI projected that if the transition to 'With Corona' is completed by mid-next year, China could achieve an economic growth rate exceeding 5%.

Previously, Wall Street investment bank JP Morgan Chase forecasted China's economic growth rate at 4% for next year, adding that if the 'With Corona' transition is well-prepared and orderly, growth could reach as high as 5.3%.