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The calls for one of the most talked-about recessions in history are starting to recede.
"We have revised higher our outlook for growth in economic activity this year and next, and no longer expect the economy to fall into a mild recession," Bank of America US Economist Michael Gapen wrote on Tuesday.
Bank of America now sees the Fed's interest rate hike ending in a "soft landing, where growth falls below trend in 2024, but remains positive." The shift by Bank of America's team of economists from a mild recession in 2024 to no recession at all comes amid growing optimism about the state of the US economy.
Fed Chair Jerome Powell said last week central bank staff no longer sees a recession in 2023. Goldman Sachs recently kicked down its odds of a recession in the next 12 months to 20% from 25%. Its chief economist Jan Hatzius was in line with Gapen's call, as Goldman forecasts the next phase of the US economy will be "unspectacular growth." Even corporations like Caterpillar (CAT) are saying business activity is progressing better than initially feared.
And forward-looking indicators for the current quarter are increasing, too. The Atlanta Fed's GPDNow forecaster, which tracks gross domestic product in the US, increased its projection for the 2023 third quarter on Tuesday. It's now projecting economic growth to accelerate to 3.9% in the third quarter, which would be the best quarterly performance for the metric since the fourth quarter of 2021.
An upward revision to first quarter GDP and a recent preliminary reading on second quarter GDP showed the economy has grown at 2.0% or better for the last four quarters.
"Whereas the as-reported data was pointing to a slowdown in activity earlier this year, revisions took this signal away and, together with recent data, point to ongoing resilience," Gapen wrote.
'The most anticipated recession'
In early July, Invesco global markets strategist Brian Levitt told Yahoo Finance Live the US economy was headed for "the most anticipated recession you could imagine," echoing Wall Street's broad consensus that the Fed's interest rate hiking cycle would end with an economic downturn.
But the Fed just raised interest rates to the highest levels since 2001 and economic data is showing more resilience than expected. The Fed's preferred inflation measure just hit its lowest level in nearly two years. Meanwhile wage growth grew at its slowest pace since the fourth quarter of 2021 in the three-month period from April to June, per data from the Bureau of Labor Statistics.