findings Published, reply as of December 4th. Financial Times article here.
The survey GDP median is very consistent with the SPF November outlook, taking today’s fourth quarter GDPNow forecast as an example:
Figure 1: GDP (bold black), GDPNow estimates as of 12/6 (light blue squares), FT-IGM 2024Q4 GDP (red squares), 90%ile band (gray+) and November 2023 professional forecasters Survey median (blue line). Sources: BEA Q3 2023 Second Release, Atlanta Fed (12/6), FT-IGM December 2023 U.S. Macroeconomist Survey, and Philadelphia Fed.
The median growth forecast for the fourth quarter/fourth quarter of 2024 is 1.2%, while the median SPF in November is 1.3%.
What are the expectations for Fed policy? Much depends on expected inflation. The median survey response for Q4/2024 was 2.7%, compared with the November SPF response rate of 2.4%.
source: FT-IGM December 2023 survey.
When do respondents think the Fed will start cutting interest rates? The second quarter of 2024 will be about 1/3, and the third quarter of 2024 will be about 1/3. I predict cuts in the second quarter of 2024.
notes: My reply has a red arrow. source: FT-IGM December 2023 survey.
I predict a relatively early date for a federal funds rate cut, in part because my view is that if a recession (as finalized by the NBER) hits, it will happen in the first to second quarter of 2024. Interestingly, as of today, CME Group’s Federal Reserve Watch It means that the possibility of a rate cut at the end of March is greater than an even number.this Atlanta Fed Probability Tracker It also showed a decline in the first quarter.
notes: The blue line is my response. source: FT-IGM December 2023 survey.
My view on the likelihood of a recession differs from most others, with almost half of respondents not thinking a recession is imminent.My interpretation is that even if we could “land the plane” (a.k.a. “Soft landing”) to avoid a deep recession, we could still end up in a recession, maybe even a mild one (I always think of the 2001 recession, where GDP was essentially trending sideways while unemployment rose from the lows in January 2000 The NBER defines a trough of about 1.5 percentage points and a final increase of about 2.5 percentage points by June 2003 (remember the jobless recovery?). This reading is based on historical correlations using domestic and foreign term spreads and debt service ratios.
figure 2: Recession probability forecasts from term spread only specification (blue), term spread, country financial conditions index, foreign term spread (tan), and term spread, country financial conditions index, debt service ratio, foreign term spread (green). The debt service ratio from April 2023 to 2009 is inferred using the 3-month public bond yield, which conforms to the first-order difference specification. Red dashed line at 50% threshold. NBER-defined recession peak-to-trough dates are in gray.
Note that recession is defined here as a binary indicator. A high probability of a recession does not necessarily correlate with a deep recession.
