As part of Yahoo Finance's 2024 Investor Guide, Goldman Sachs Chief US Economist David Mericle weighs the risks that could derail the Federal Reserve's progress in the inflation fight. Though he predicts recession odds have eased to 15%, challenges remain to loom over the US economy.

Mericle notes encouraging disinflation trends, saying "the soft landing has gone from on track to largely here." However, two issues left him cautious — whether inflation could be tamed without a recession, and if "regional banking stress" could prompt a crunch on credit conditions.

Mericle says both concerns have abated with inflation clearly cooling and banking contagion effects more contained. Still, he warns "recession odds are never zero," and it would likely take a major "external shock" at this stage to destabilize the economy.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

RACHELLE AKUFFO: For more on what's in store for the Fed next year, we're joined by David Mericle, Goldman Sachs chief US economist as part of Yahoo Finance's 2024 investor guide. Thank you for joining me in this morning. So let's break down the Fed's fight here on the recession that either is or never was and the likelihood of a soft landing.

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DAVID MERICLE: Sure. Look, I think in the last half year, things have gone very well. Inflation's has come down very sharply, it turns out, from the first half of this year running at about a 4% annualized pace to the back half, running at what we think will turn out to be a less than 2% pace. All of that has happened, of course, despite GDP growth growing above 5% annualized in the third quarter and looking fine in the back half of this year as well.

So I think that, you know, the soft landing has gone from on track to largely here in the sense that the underlying inflation trend now looks to be pretty close to 2%, and the labor market has rebalanced as well. If you look at many measures of labor market tightness, on average we're not in that different of a place than we were in 2019. All of this has happened a lot more quickly than we had anticipated over the last several months.

As the inflation data have rolled in, we've made some downgrades to our inflation forecast, and I'd say broadly the change is that rather than gliding into the mid 2s next year, which would have been a-- I think a perfectly good outcome, it now looks like instead we are sort of abruptly finding ourselves more or less at a 2% underlying pace.

AKIKO FUJITA: You said that you now specifically see only a historically-- historical average, 15% chance of a recession. As you see-- as you look to 2024, what would likely tip it in that direction?