For months, economists have been trying to address the disconnect between the strong economic performance and people's negative perception of their own financial situation.

Now, Michael Pearce, Deputy Chief U.S. Economist at the Oxford Economics, suggests that there is evidence indicating the so-called 'atmosphere of recession,' i.e. enduring negative emotions towards the economy, seems to be coming to an end.

In a report released last Friday, Pearce wrote that with cooling inflation, the Fed preparing to cut interest rates, Americans' assessment of the future is improving, aligning the country's economic conditions with consumer confidence.

Other economists have also noticed a recent 'optimistic' outlook.

Brett House, economics professor at Columbia Business School, said, "Consumer confidence seems to be catching up with the pace of the economy, gradually moving towards the middle ground."

However, Pearce wrote in his report that it is difficult to determine what has caused this shift in sentiment. He wrote:

"The explanation most likely is that people’s optimism about the future is strengthening, possibly reflecting a delayed reaction to the news of inflation falling and apparently continuing to fall to 2%, as well as the Fed taking a clear path of interest rate cuts."

Recent economic data has paved the way for the Federal Reserve to lower benchmark interest rates for the first time in years.

The Federal Reserve's preferred inflation indicator - the PCE price index - rose 2.5% year-on-year in July. Despite the unemployment rate rising over the past year, it remains at a low of 4.2%.

Greg McBride, Chief Financial Analyst at Bankrate.com, said "all signs indicate ongoing improvement in inflation, and the CPI data scheduled for release on Wednesday is expected to show further easing of inflationary pressures."

"Other inflation indicators - the PCE price index and unit labor costs - have been telling the same story and have laid the foundation for the Federal Reserve to begin cutting interest rates this month," he said.

The CME FedWatch Tool shows that the market currently predicts a 100% chance of the Federal Reserve cutting rates at the meeting scheduled for September 17-18, and may take more aggressive measures later this year.

"Pinning down a long-awaited soft landing."

Meanwhile, the latest data shows that consumer spending is performing better than expected.

Jack Kleinhenz, Chief Economist at the National Retail Federation, stated in the September NRF Monthly Economic Review released last Friday, "The American consumer has remained resilient."

Kleinhenz said that although a recession was expected earlier, the United States has avoided an economic recession. He said, "The US economy clearly has not fallen into a recession, and it is unlikely to fall into a recession in the final stages of 2024. Instead, the economy seems to be on the verge of achieving a long-awaited soft landing, while achieving a dual cooling of growth and inflation."

House of Columbia University said that inflation has made progress and the labor market has not deteriorated significantly, creating a 'classic blonde girl' scenario.

Despite a group of 'recessionists' insisting that a severe economic slowdown is imminent, fewer and fewer economists now believe that this scenario will occur in the short term. Goldman Sachs recently lowered the possibility of an economic recession from 25% to 20%, after previously raising it from 15% to 25%.

McBride said, 'In 2023, this camp is very crowded and has good reasons, but the possibility of a soft landing has been steadily increasing over the past 12 months.'

Officially, the US National Bureau of Economic Research defines a recession as 'a significant decline in economic activity that spreads across the entire economy, lasting for more than a few months'. The last time this happened was in early 2020, when the economy suddenly stagnated. The United States experienced more than a dozen recessions in the last century, some lasting up to a year and a half.

House said, 'The problem with recessionists is that they will certainly be right at some point. Of course, at some point in the future, the US economy will fall into a recession.'

House said that some form of economic turmoil or adjustment occurs with a fairly regular frequency. Now, the upcoming US presidential election and possible significant policy changes bring additional uncertainty. House said:

'Recessionists will eventually be right, but there's no victory if a recession occurs years later.'

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