Economist: I don't see recession 'around the corner'

Ahead of the Federal Reserve's expected rate cut announcement, Comerica Bank chief economist Bill Adams joins Madison Mills and Brad Smith on Morning Brief to discuss what to expect from the Fed on Wednesday and how it could affect the economy going forward.

The economist tells Yahoo Finance that he sees a 25 basis point cut as the most likely outcome of Wednesday's meeting, saying "the economy is in a pretty good place." Adams notes that no matter the size of the cut, "as long as the Fed signals that they expect to make substantial further cuts into 2025, I think that will provide the reassurance that financial markets and the economy more broadly needs."

"I don't see a recession around the corner," Adams says, adding he's been watching the Sahm indicator and unemployment for signs of a recession. "Historically, when the unemployment rate has risen as much as it has, the economy has been in recession, but this time ... seems different because we're seeing very rapid labor force growth in 2024."

He adds that coming out of the Fed meeting, the outlook, given through the dot plot and Jerome Powell's remarks, may ultimately be more important to the market than the cut. "I think forward guidance is going to matter more than the immediate decision," he says. Adams tells Morning Brief, that he expects "actual policy is going to probably end up more dovish than what we see in the dot plot."

Adams reminds investors that fiscal policy is among the factors that are outside of the Fed's control and will not be reactive to rate cuts. As the presidential election fuels uncertainty about the market and economy, the economist says he's been reminding clients "that fiscal policy depends as much or more on what happens in Congress" and while "the presidential election is what's eating up all the bandwidth, but what happens in the legislative branch is really going to determine what happens with fiscal policy."
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