Expect the U.S. economy to slow down in 2024 but continue to avoid a recession, a Cornell economist predicts.

Steven Kyle, associate professor in the Charles H. Dyson School of Applied Economics and Management, part of the Cornell SC Johnson College of Business, was one of many economists surprised that the U.S. avoided recession last year, as the Federal Reserve moved aggressively to curb inflation by raising interest rates.

Now, Kyle said, a widely watched indicator associated with past recessions called an “inversion” – when short-term interest rates are higher than long-term rates – ominously suggests one could still be coming. But Kyle thinks that’s unlikely with inflation in check and positive signs elsewhere in the economy.

“We’ve gotten rid of the inflation without any recessionary conditions,” Kyle said. “It’s really not obvious that this indicator is going to continue to be as reliable as it has in the past.”

Kyle presented his annual U.S. economic forecast at the 2024 Dyson Agricultural and Food Business Outlook, hosted Jan. 19 in Stocking Hall. Dyson faculty experts also offered forecasts for the dairy, fruit and vegetable, and wine markets, and discussed policies to help grow New York state agriculture, and foreign ownership of U.S. farmland.

Among key U.S. economic indicators in 2024, Kyle predicted:

• Inflation remaining low, around the current 2% level. “That’s [the Fed’s] target, they seem to be hitting it.”
• Short-term interest rates declining to around 3.5% to 4%. “They’ll go down throughout the year … That’s just taking the Federal Reserve at their word.”
• Unemployment rising to 4% to 4.5%, up slightly from the near-record-low current level around 3.7%. “Employment, it’s likely, can’t continue to be sub-4% forever.”
• A gross domestic product around 1.5% to 2% in real terms, down from about 2.6%. “That assumes a continued slowdown, but not a recession.”

Kyle said the nation continues to emerge from the hangover of pandemic lockdowns and related stimulus policies, a period during which he said the statistics he predicts “have not behaved predictably.”

Kyle awarded himself a “C” grade for a too-pessimistic forecast last year, when he anticipated a Fed-engineered recession, higher unemployment and an inflation rate twice that seen at the end of 2023. In hindsight, he said, the resolution of pandemic supply chain issues and public belief that the Fed was serious about attacking inflation best explains how high inflation was reversed so rapidly, compared to past surges, and without a recession.

“We all thought, given history, that it would take a recession to squeeze that inflation out of the system,” Kyle said. “It didn’t happen that way.”

Instead, he said, retail sales and consumer spending last year remained strong, real wages increased, unemployment remained low and growth far exceeded his expectations.

Kyle acknowledged that various wildcards could throw off his projections – a cratering of the Chinese economy, for example, or a dysfunctional Congress failing to respond to a major political or economic issue. Repeated threats to shut down the federal government over the debt ceiling, he noted, are “no way to run an economy.” Finally, he said, poor policy choices could usher in the recession hinted at by the interest rate inversion.

“The Fed could mess up by sticking with high interest rates too long,” Kyle said. “I’m not putting a high probability on that one. They seem to be very much seeing reality as it is.”