What’s going on: “On average, economists expect inflation, as measured by the annual increase in the consumer-price index, to end this year at 3.53%, up from 3.1% in the January survey. Inflation in March was 5%, the Labor Department reported this past week, the lowest in two years.”

  • Markets expect the Fed to cut interest rates by the end of the year, and more economists are agreeing with them as the year goes on.

Recession and stagnation: With inflation and interest rates remaining elevated, economists forecast a brief, shallow recession in the third quarter of this year.

  • They also expect stagnant growth for the remainder of 2023, and predict that “inflation-adjusted gross domestic product [will] rise just 0.5% in the fourth quarter of 2023 from the fourth quarter of 2022. Growth in 2024 isn’t expected to fare much better, at 1.6%.”

​​​​​​​A “hard landing”: The most likely outcome of current conditions is a “hard landing”—an economic climate in which high interest rates succeed in lowering inflation but at the cost of job losses and a recession, economists said.

  • They predict that the pace of U.S. job growth, currently higher than the 2019 pre-pandemic average, will turn negative later this year.

The final say: “Inflation continues to be a challenge, ranking second in the latest NAM Manufacturers’ Outlook Survey behind workforce issues,” NAM Chief Economist Chad Moutray said. “The good news is that pricing pressures have started to moderate somewhat and will likely continue to do so.” “But costs remain sticky overall, and for this reason the Federal Reserve will continue to raise rates, perhaps as soon as the next meeting from May 2–3, with rates staying elevated until policymakers see signs of more improvement.”

  • The P. Morgan Global Manufacturing PMI pulled back from 49.9 in February to 49.6 in March, contracting for the seventh straight month. However, respondents continued to signal optimism about production growth over the coming months. Encouragingly, delivery times narrowed further in March, with supply chain bottlenecks continuing to improve, and input prices grew at the slowest pace since July 2020.