US Economists Admit Forecast Failures, Say "Soft Landing Possible Without Recession"

Annual Meeting of the American Economic Association Held
"No Price Control Without Recession"
Admits Last Year's Forecast Was Wrong

American economists have predicted a high likelihood that the U.S. economy will achieve a soft landing this year without entering a recession. They also acknowledged that their previous view?that inflation could not be controlled without a recession?was mistaken. Calls were made for improvements to existing economic models related to inflation.

According to local media such as the U.S. daily The Wall Street Journal (WSJ) on the 7th (local time), economists from major U.S. universities and research institutions diagnosed the U.S. economic situation and outlook in this way at the annual meeting of the American Economic Association (AEA) held from the 5th to the 7th in San Antonio, Texas.

The economists admitted that their previous economic forecasts were wrong regarding the slowdown of inflation without a recession last year. This is because at the annual meeting held in Orlando, Florida, in January last year, many economists predicted that inflation could not be reduced without a recession.

However, the U.S. economy has shown signs of easing inflation and an overheated labor market while maintaining solid growth. The personal consumption expenditures (PCE) price index, the inflation indicator most closely watched by the U.S. Federal Reserve (Fed), rose 2.6% year-over-year as of November last year, meeting the Fed’s target of 2%. The U.S. gross domestic product (GDP) growth rate for the third quarter of last year was 4.9% annualized, slightly lower than the preliminary figure of 5.2%, but still strong.

While economists remain cautious about the future economic outlook, they generally agreed that the U.S. economy could achieve both the inflation target and a soft landing.

James Hines, a professor at the University of Michigan, said, "We did not properly understand the reasons for the sharp rise in inflation initially," adding, "We should not be surprised that inflation slowed down faster than expected." Emi Nakamura, a professor at the University of California, Berkeley (UC Berkeley), said, "Because inflation transitions are difficult to predict, we must be humble," but also noted, "At this point, the story of achieving the inflation target without a recession is very plausible." Nakamura is a recipient of the John Bates Clark Medal, awarded to economists under 40.

Economists also agreed with the forecast that the Fed will begin cutting interest rates within the year. However, they expected the pivot point to be delayed compared to Wall Street’s anticipation of rate cuts in the first half of the year.

John Taylor, a professor at Stanford University, said, "If inflation continues to fall, interest rates will also decline," predicting that the Fed’s benchmark interest rate will drop to the 3-4% range. He is one of the economists who criticized the Fed for being late in responding to inflation in 2022.

Voices were also raised that the problem was mechanically applying existing economic models to the unprecedented situation of the COVID-19 pandemic. Janice Eberly, a professor at Northwestern University, pointed out that overreliance on existing economic models immediately after the pandemic led to overly pessimistic assessments and that the supply chain disruptions that pushed inflation up in 2021 were only temporary phenomena.

Professor Eberly said, "The economy is performing better on the supply side than previously expected," adding, "This means that inflationary pressures are not increasing and the economy can maintain strong growth." She emphasized that this is "the most hopeful part of the soft landing scenario."

This content was produced with the assistance of AI translation services.