BCA Less Optimistic About US Economy Avoiding Recession

BCA Research analysts expressed increasing doubts about the U.S. economy’s ability to avoid a recession, even after the Federal Reserve made a surprising 50-basis-point rate cut. This cut marked the start of the Fed’s easing cycle, but the analysts noted that it was not clearly communicated beforehand, which is atypical for the Fed.

The analysts highlighted that prior communications did not suggest a 50-basis-point cut, indicating that recent market speculation was based on an article that presented an ambivalent view of the Fed’s intentions. Although former New York Fed President Dudley suggested there was a “strong case” for a significant cut, he does not hold a voting position on the Federal Open Market Committee.

During the press conference, Fed Chair Jerome Powell played down the notion of aggressive monetary easing, labeling the cut as “timely” in light of economic challenges. However, BCA expressed skepticism, pointing out that Powell seemed unconcerned about the risk of renewed price pressures from such significant cuts, complicating the Fed’s approach.

Another critical aspect noted by BCA was the Fed’s revised dot plot, indicating potential 25-basis-point cuts in November and December, followed by a slower reduction pace in 2025. While the Fed maintains a hopeful outlook regarding a soft landing and stable labor market, BCA remains cautious, suggesting that the delayed impacts of previous tightening measures could still lead to a recession.

In their conclusion, BCA stated that they are less optimistic than the Fed about avoiding a recession, noting that labor market conditions may worsen before the positive effects of the recent rate cuts are realized.