2025 Economic Forecast: 69% of Analysts Predict a Soft Landing, Not a Recession

Diccon Hyatt is a seasoned financial and economics journalist who has extensively covered the pandemic-era economy through hundreds of insightful articles over the last two years. His expertise lies in translating complex financial matters into clear, relatable language, focusing on how economic trends impact personal finances and market dynamics. He has also contributed to U.S. 1, Community News Service, and the Middletown Transcript.

Key Insights

• In August 2024, 69% of business economists surveyed expressed at least moderate confidence that the U.S. economy will achieve a 'soft landing' instead of facing a severe downturn.
  
• This marks a significant shift from March 2024, when only 30% believed a soft landing was probable.
  
• Optimism has grown as inflation rates have steadily declined and massive job losses, typically expected during Federal Reserve anti-inflation measures, have not materialized.
  

The outlook among business economists is increasingly positive, with many now anticipating that the U.S. economy can sidestep the prolonged recession once widely forecasted.

A recent survey of 169 National Association for Business Economists members revealed a sharp rise in confidence, with 69% in August 2024 believing in a soft landing, up from 30% in March. This reflects a notable change in sentiment driven by data showing easing inflation and stable employment figures, challenging earlier expectations that aggressive Federal Reserve interest rate hikes would trigger a recession.

The concept of a 'soft landing' in economic terms gained popularity after NASA's successful Apollo moon landing in 1969. Economists began to hope the Federal Reserve could similarly guide the economy to slow inflation without causing a crash, a challenge especially relevant given the inflation crises of the 1970s.

The Federal Reserve combats inflation primarily by raising benchmark interest rates, increasing borrowing costs across mortgages, business loans, and other credit. This strategy aims to reduce consumer and business spending, easing upward pressure on prices. Historically, the Fed’s attempts at soft landings have been difficult, with eight of the last nine inflation-fighting cycles resulting in recessions.

Since March 2022, the Fed has raised the federal funds rate 11 times, reaching its highest level since 2001 in July 2024. Officials have indicated plans to maintain or potentially increase rates further to sustain inflation control.

Interestingly, corporate executives hold a more cautious view. A recent Conference Board survey of 127 CEOs found that 84% anticipated a recession within the next 18 months as of Q3 2024, although this is a decline from 93% in the previous quarter, suggesting a gradual easing of pessimism.

While economists grow more optimistic about avoiding a recession, business leaders remain wary of the economic drag caused by higher interest rates. This divergence highlights the complexity of forecasting economic outcomes in a dynamic environment.

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