Jackson Hole Conference Economists: No need to worry too much about the US economy!

Experts attending the Jackson Hole conference expressed that they expect the U.S. economy will not fall into a recession.

Karen Dynan, an economics professor at Harvard University, said: "The foundation of the U.S. economy looks good. Overall, the situation seems quite stable."

She added: "When we enter a typical recession, there are usually some underlying weaknesses. But it doesn't feel like that right now."

Since the release of weak July employment data, concerns about a recession have increased. Michael Feroli, Chief U.S. Economist at Morgan Stanley, pointed out in a report to clients that the data shows a slowdown in labor market demand, indicating a slowdown in wage income growth and an increase in layoffs.

Analysts attending the conference in Jackson Hole, Wyoming, are closely monitoring the labor market, but the current signs of weakness indicate an economic slowdown rather than a recession.

The unemployment rate has risen from a low of 3.4% in April 2023 to 4.3% in July.

Former Federal Reserve Vice Chairman Alan Blinder said in an interview at Jackson Hole, "To achieve a soft landing, you have to slow down the plane." He stated that the likelihood of an economic recession is not much higher than the consistent 15% probability.

Dynan stated that the rise in the unemployment rate in the past often heralded the arrival of an economic recession, but this time is different. In recent years, a large influx of immigrants has pushed up the unemployment rate as these new immigrants are looking for work.

Dynan said, "I know some people think that once the unemployment rate rises to a certain percentage, a recession is likely, but it is not yet clear whether this empirical rule applies."

According to the Federal Reserve meeting minutes, Fed staff predict that the unemployment rate will rise slightly for the remainder of 2024, then remain roughly unchanged in 2025 and 2026.

Former Kansas City Fed President George said in an interview that she is also not worried about a recession.

George said, "I haven't received the signals from the labor market that others have. I think the labor market needs to ease relative to its previous tightness." She also said, "Once the unemployment rate starts to rise, it may gain its own momentum. But for now, it looks okay."

George added, "So far, consumers are performing well."

Powell said in a speech last Friday, "It's time" to cut rates in September. This would be the first rate cut in four years.

Powell did not discuss the extent of possible monetary policy easing. Most experts at Jackson Hole expect the federal funds rate to be cut by 25 basis points. If the August jobs report released on September 6 shows weakness, it may prompt the Fed to cut rates by 50 basis points.

However, the bond market reflects concerns about an economic recession. Derivatives traders have factored in some risks if the Fed significantly cuts rates to cushion the economy Another former Kansas City Fed President Hoenig said he doesn't like the "one-sided bet" in the bond market. He mentioned the risk of inflation resurging.

He added, "Recession is always possible, but everything is stable at the moment. We are not inevitably heading towards a recession." Rapid rate cuts could reignite inflation pressures.

Economists at Jackson Hole believe that the Fed will gradually cut rates. The next big question is how low rates could go.

George suggested that the Fed may cut rates two or three times this year, by 25 basis points each time, and then pause to reassess. She said, "I would cut a few times first and then see how things go."

Bullard mentioned that he wouldn't be surprised if some rate cuts were as large as 50 basis points.

Currently, the Fed's benchmark interest rate is 5.25%-5.5%.

If the economy remains stable, with inflation at 2% and economic growth around 2%, the Fed believes the benchmark interest rate should be 2.8%