Economists are becoming more optimistic about winning the war against inflation without the need for a recession or sky-high unemployment, and on Friday the Congressional Budget Office released projections that show the much-discussed soft landing occurring in 2024.
In its latest outlook for the U.S. economy, CBO said it expects the inflation rate to fall to 2.1% in 2024 – nearly reaching the Federal Reserve’s 2% target. The drop from an estimated 2.9% annual inflation rate in 2023 to the 2.1% level will be driven by a weaker labor market and smaller increases in rents, CBO said. Inflation is expected to rise slightly in 2025, reaching 2.2% as the economy grows slightly faster, accelerating from an anemic but still positive 1.5% expansion in 2024 to 2.2% the following year.
The labor market is projected to weaken modestly in 2024, with the unemployment rate rising from 3.9% at the end of 2023 to 4.4% by the end of 2024. CBO expects the unemployment rate to hold steady at the same rate throughout 2025.
Compared to projections made at the beginning of 2023, CBO now thinks that the economy will be a bit weaker and unemployment a bit lower than it did before, while interest rates will be slightly higher.
Meanwhile, Lael Brainard, director of the National Economic Council and President Joe Biden's top economic adviser, said Friday that the “width of the runway for [a] soft landing has gotten much bigger” according to recent economic data. She told reporters that "we've seen quite positive indicators, that inflation really has come down and it's going to continue to come down while the economy is going to maintain strength going into the next year.”
Brainard noted that while financial markets are already reflecting a more optimistic outlook for the economy, it will take time for those good feelings to trickle down to ordinary Americans.
