November is when major banks release their research on the US economic outlook.
This year’s U.S. economic outlook season is anything but monotonous. Goldman Sachs expects U.S. growth to be robust at 2.1 percent, double UBS’s forecast. Some banks see U.S. inflation halving by 2024. Some credit agencies see prices remaining stable, falling to around 3 percent, still well above the Federal Reserve’s target. And expectations for further rate cuts range from zero to 2.75 percentage points.
The differences between these scenarios are not simply a disagreement over the growth outlook. Economists at Goldman expect U.S. economic growth and inflation to remain hot, while their UBS counterparts expect both to slow significantly.
At Bank of America, experts expect stagflation, so the Fed's policy rate will be little changed. Morgan Stanley expects a "perfect disinflation" scenario, in which inflation can return to target without growth falling below trend.
Economists at Deutsche Bank say the economy is returning to the 1970s, when central banks were reckless with inflation. Those at UBS expect a “90s turnaround” — slowing growth as interest rates fall, followed by a boom as new technology drives productivity gains. Goldman’s Jan Hatzius says comparisons to decades past are “overly simplistic” and could mislead investors.
The lack of relativity among forecasts suggests that the future is very difficult to predict. Most people are surprised by the level of inflation, the speed of interest rate increases needed, and then the resilience of the economy.
But there is a common thread in the stories economists are telling. Many seem to think the worst is over. “The Last Mile” is the title of Morgan Stanley’s outlook document. Goldman describes the current state of the U.S. economy as “the hard part is over.” And by 2024, the contradictions in the U.S. economy are expected to have resolved themselves.
Perhaps by 2025, consensus in the outlook documents will emerge again.
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