- RBC Global Asset Management put the odds of a recession in 2024 at 70%.
- In the firm's 2024 outlook, strategists shared six reasons why they hold that view.
The Federal Reserve's interest-rate hiking cycle has yet to tip the US economy into a downturn, but RBC Global Asset Management put the odds of a recession in 2024 at 70%.
For now, inflation has cooled, unemployment has remained low, and the stock market's major indexes are touching all-time highs.
But RBC strategists said their recession prediction is informed by the softening economic and business landscape. They shared six reasons why a recession will arrive in the first half of the new year.
1. The Fed's rate hikes have gone high enough to trigger a downturn. The current policy is "deeply in restrictive territory," and that stance may no longer be appropriate if the economy continues to slow or inflation continues to cool.
2. Souring economic data suggests further weakness ahead.
3. The firm's recession scorecard is flashing warning signals. For example, the 2-year and 10-year curves are inverted, as well as the 3-month and 10-year curves — both pointing to a recession. The scorecard also shows financial conditions and lending standards have tightened.
4. RBC's business-cycle model indicates the economy is vulnerable to a downturn, as it's currently late in the cycle.
5. the economy is operating beyond a sustainable level, meaning that a period of sub-par activity is needed to cool things down.
6. central banks around the world are intent on cooling inflation to pre-pandemic levels, and they will likely have to produce a period of economic weakness to curb wage growth and pricing power.
RBC said any recession will likely be "reasonably mild and fairly short," and the labor market would see fewer job losses than typical.
"Still, a recession can be expected to inflict very real pain on businesses and households, and cascade into financial markets as well," the strategists added.