The US can still avoid a recession if its plays its cards right – CIBC

<p>CIBC today indicates that next week it will upwardly revise its forecasts for US economic growth and pencil in an additional Fed hike this year.</p><p>That move goes against the current prevailing market thinking that has the Fed stuck on the sidelines for months. Current pricing suggests only an 8% chance of a hike on Nov 1 and about 30% for the Dec 13 meeting.</p><p>CIBC said the upcoming forecast will include "an additional Fed rate hike
before this year ends, and a further delay before our forecast
slowdown kicks in" along with an upward forecast to US growth.</p><p>Coupled with that will be a boost in Q3 GDP to "nearly 4%" from 2.5% just a month ago. They also estimate only a small chance that Q4 growth is negative.</p><p>"We still expect that an outright
recession can be avoided if the central bank plays its cards right,
and starts to ease rates in the latter half of 2024," CIBC writes.</p><p>As for the rate hike call, it appears to have a conditional element.</p><p>"if long rates start to edge lower again,
as they could in the absence of a fed funds hike in October, that
could see them hike again before year end," CIBC writes.</p><p>"We’ll risk being a broken record by simply pushing back our call
for a stall in US growth into Q1 of 2024. Some of the leading indicators for such a retreat, including slowing bank lending,
and weaker activity in interest-senstive measures like housing
starts and resales, are still pointing that way, as is the market’s
favourite omen, an inverted yield curve."</p><p>The Canadian bank notes that it won't be boosting up its BOC forecast for terminal rates, saying that current interest rates are already providing a sufficient headwind to growth.</p><p>Looking to next week, CIBC highlights speeches from Williams and Chair Powell for potential signals about how higher long-dated yields will affect rate setting. Next Saturday the FOMC blackout also begins.</p>

This article was written by Adam Button at www.forexlive.com.