Dec 15, 2023 - Business

U.S. economy will pull off soft landing in 2024, CBO projects

A customer visits a Target in San Mateo, California, on Dec. 12. Photo: by Li Jianguo/Xinhua via Getty Images

The U.S. economy is on track to avoid a recession next year as inflation returns to normal, according to new economic projections released by the Congressional Budget Office.

Why it matters: The nonpartisan agency expects more moderate economic conditions in 2024 — including slower growth and higher jobless rates — than previously anticipated. But its projections suggest America will skirt an all-out contraction in growth.

  • The CBO notes that its projections "are highly uncertain and many factors could lead to different outcomes."

By the numbers: The CBO projects the economy will grow 1.5% in 2024 — a slower rate of growth than the 2.5% estimated in February — before rebounding to 2.2% in 2025.

  • The CBO says the weaker growth next year will be due to softer consumer spending and less investment from corporations in new facilities.

The agency sees inflation — as measured by the Federal Reserve's preferred gauge of price growth, the personal consumption expenditures index —falling to 2.1% next year, "reflecting softer labor markets and slower increases in rents."

  • These economic assumptions will be incorporated in the agency's projections for tax revenue, spending and deficits to be issued early next year.

The intrigue: The CBO's projections are largely in line with those released by the Federal Reserve earlier this week, which showed a slowdown in economic growth.

  • But the CBO is more pessimistic about the job market: it sees unemployment spiking to 4.4% by the end of next year and remain close to that level through 2025. (The Fed, meanwhile, sees the unemployment rate rising to 4.1% next year.)
  • As of November 2023, the unemployment rate was 3.7%.

Of note: The CBO also sees the Fed holding interest rates at current levels through the beginning of next year then slashing rates "in response to slowing inflation and rising unemployment."

  • The Fed 's own projections released this week showed most officials anticipate at least three rate cuts next year.
  • In CBO's projections, the yield on the U.S. 10-year Treasury note will increase to 4.8% in late 2024 before falling in 2025 — figures that already looks out of date due to the sharp drop in yields this week.

Go deeper: What the Fed's rate policy pivot means for the economy

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