Why the Federal Reserve does not predict a recession?

The US central bank sees no signs of an economic recession this year or in the coming years, according to CNN Business.

The nineteen members of the Federal Reserve's policymaking committee released a new set of economic forecasts last week, showing that growth estimates for 2024, 2025 and 2026 are even stronger than previously expected.

It's an optimism shared by many analysts, including Goldman Sachs' chief economist, who says the "economic pains of a recession," such as mass layoffs and reduced consumer spending, likely won't appear anytime soon, according to CNN Business.

"The economy is solid, the labor market is solid and inflation has come down a lot," Fed Chairman Jerome Powell said last Wednesday. Corporate profits have been robust, the stock market continues to hit record after record, and the United States may be enjoying a productivity boom that can spur economic growth without fueling inflation. And even though interest rates are at their highest level in two decades, the economy continues to show remarkable resilience, which economists say may persist for years to come, according to CNN Business.

Fed officials continue to expect three rate cuts this year, but the days of very low interest rates are over. Eventually, rates will stabilize at levels well above their existing near-zero levels before the Fed starts raising interest rates in 2022. But economists believe that this will not pose any problem for the strong US economy, according to the American publication.

Mike Skordeles, head of US economics at Truist Advisory Services, told CNN that while many of his colleagues refer to higher-for-longer interest rates, he believes that in reality it's about a stronger economy for longer.

In the fourth quarter of last year, the United States' gross domestic product grew at a solid annualized rate of 3.2%, after a bumpy 4.9% in the previous quarter. The Atlanta Fed estimates that in the first three months of this year, the United States economy grew at a 2.1 percent growth rate. Fed officials forecast that the US economy will grow 2.1% this year, which will then be 2% in 2025 and 2026. Labor market - key driver of growth, remains solid. Admittedly, there is a gradual slowdown compared to the 2021 level, but unemployment remains low and wage growth is maintained. In February, 275,000 jobs were created and the unemployment rate rose to 3.9% from 3.7%, but remains below the 4% level for more than two years. Jobless claims, an indicator of layoffs often seen as the earliest signals of changes in the labor market, remain at historically low levels, writes CNN Business.

According to Skordeles, the economy will remain strong thanks to "better productivity than before the pandemic" and "structural changes in the labor force".

But however optimistic the outlook, any unforeseen shock can derail economic growth. One of the main risks in this regard is the possibility that the decline in inflation will stop.

"We believe that the risk of a recession has diminished," said Stephanie Lang, chief investment officer at Homrich Berg, "But the big wild card is an inflation-related surprise that the Fed and the markets are not expecting. If this happens, then the Federal Reserve will be much more focused on fighting inflation, so it could find itself in the position of keeping rates at a restrictive level for too long, causing too much of a decline in economic growth, which will lead to recession," the chief investment officer added to CNN.