As the U.S. economy successfully completes a soft landing, economists predict the end of the 'vibecession'.

• For months, there has been a disconnect between the economy's performance and people's perceptions of their financial well-being.
• Some experts say that recent economic data and consumer sentiment are now more aligned.
• According to Brett House, an economics professor at Columbia Business School, the issue with recessionists is that they will eventually be correct at some point.

For months, economists have grappled with the incongruity between the economy's performance and individuals' perceptions of their financial well-being.

According to Michael Pearce, deputy chief U.S. economist at Oxford Economics, evidence indicates that the "vibecession," or the prolonged period of negative sentiment about the economy, may be coming to an end.

With inflation decreasing and the Federal Reserve planning to reduce interest rates, Americans' perceptions of the future are improving, aligning the country's economic outlook with consumer sentiment, according to Pearce's report published on Friday.

Prepare your portfolio for the election by "Emotionproofing" it.

Other economists also note a recent glass-half-full outlook.

"According to Brett House, an economics professor at Columbia Business School, consumer confidence appears to be aligning with the current state of the economy."

In his report, Pearce stated that it was challenging to determine the cause of the mood shift.

"Pearce wrote that our leading candidates could be a delayed reaction to the news that inflation is falling back and is expected to continue on a downward trend towards 2%. Additionally, it could indicate increased optimism for the future as the Fed is now on a clear course to lowering interest rates."

Setting the stage for the Fed to cut rates

The central bank has decided to lower its benchmark rate for the first time in years due to recent economic data.

The Fed's preferred inflation gauge, the personal consumption expenditures price index, increased by 2.5% year over year in July. Additionally, despite the low unemployment rate of 4.2%, it has been steadily rising over the past year.

According to Greg McBride, chief financial analyst at Bankrate.com, all indications suggest that inflation will continue to improve, with further pressure relief anticipated with the release of the August consumer price index on Wednesday.

The personal consumption expenditures index and unit labor costs have been indicating the same trend, allowing the Federal Reserve to start reducing interest rates this month, as he explained.

The CME Group's FedWatch measure indicates that markets are pricing in a 100% probability that the Fed will start cutting rates during its meeting on Sept. 17-18, with the potential for more aggressive moves later in the year.

'Nailing a long-awaited soft landing'

Despite expectations, consumer spending has remained strong, as indicated by the latest data.

Jack Kleinhenz, the chief economist at the National Retail Federation, stated in the September issue of their Monthly Economic Review, released Friday, that the American consumer has shown resilience.

According to Kleinhenz, the U.S. has managed to avoid a recession, despite earlier predictions of one.

"According to Kleinhenz, the U.S. economy is not in a recession and is unlikely to enter one in the final months of 2024. Instead, it seems that the economy is on the verge of achieving a long-awaited soft landing, with both growth and inflation cooling down at the same time."

The labor market has not significantly deteriorated despite inflation, resulting in a "Goldilocks" scenario, according to Columbia's House.

Despite CNBC's Bob Pisani's recent statement that there is a group of "recessionistas" who believe a serious slowdown is coming, fewer economists now see this happening in the near term. Goldman Sachs recently reduced the probability of an economic downturn from 25% to 20%, following a previous increase from 15%.

In 2023, the bandwagon was packed, and it was justified, but the likelihood of a smooth landing has increased over the past year, according to McBride.

According to the National Bureau of Economic Research, a recession is defined as a substantial decrease in economic activity that affects the entire economy and persists for an extended period of time. The most recent occurrence of this was in early 2020, when the economy experienced a sudden halt.

Over the past 100 years, there have been over a dozen recessions, some lasting up to 1.5 years.

'Recessionistas will eventually be right'

""The recessionistas will always be right at some point, as the U.S. economy will inevitably experience a recession in the future," House stated."

The fall of the Berlin Wall has led to predictable economic disruptions or corrections, and now the upcoming U.S. presidential election and potential policy shifts add to the uncertainty.

""Eventually, the recessionistas will be right, but there will be no victory if it happens in a few years," House said."