Market vulnerabilities and a possible U.S. recession: Strategists give their cautious predictions for 2024

cnbc.com:

With central banks having hiked interest rates at breakneck speed and those rates likely to stay higher for longer while the lagged effects set in, the macroeconomic outlook for 2024 is far from clear.

The International Monetary Fund baseline forecast is for it to slow from 3.5% in 2022 to 3% in 2023 and 2.9% in 2024, well below the historical average of 3.8% between 2000 and 2019, led by a marked slowdown in advanced economies.

The Washington-based institution sees U.S. GDP growth, which has remained surprisingly resilient in the face of over 500 basis points of interest rate hikes since March 2022, to remain among the strongest developed market performers at 2.1% this year and 1.5% next year.

The U.S. economy's resilience has fueled an emerging consensus that the Federal Reserve will achieve its desired «soft landing,» slowing inflation without tipping the economy into recession.

The market is now largely pricing a peak at the current Fed funds target range of 5.25-5.5%, with interest rate cuts to come next year.

Yet Deutsche Bank's economists, in a 2024 outlook report published Monday, were quick to point out that monetary policy operates with lags that are «highly uncertain in their timing and impact.»

«With the lagged impact of rate hikes taking effect, we can already see clear signs of data softening. In the U.S., the most recent jobs report showed the highest unemployment rate since January 2022, credit card delinquencies are at 12-year highs, and high yield defaults are comfortably off the lows,» Deutsche's Head of Global Economics and Thematic Research, Jim Reid, and Group Chief Economist David Folkerts-Landau said in the report.

«At the outer edges of the economy there is obvious stress that is likely to spread