US Economic Outlook：Fed Stays on Hold Before Lowering Rates in 2H24
1. Fed tightening has been significant, inflation is moving back toward target .
Fed tightening has been significant.
Inflation has moderated after a boomy run.
Surge in goods prices is now behind us.
2. Labor demand has cooled, but job market remains tight.
Tight labor market usually matters the most for services prices.
Job vacancies have come down but still show strong labor demand.
3. Economy has withstood tightening to date .
Fed has focused on core services ex. rent
Inflation expectations remain mostly anchored to date
Housing demand has started to recover, supply remains low for now
Dollar and equity markets have reversed some earlier tightening
Cushion from “excess saving” has come down significantly
Manufacturing soft patch continues, business surveys staying weak
Banks are tightening lending standards, businesses face higher costs
Improvements on supply side can help economy grow
4. Recession won’t come yet, but risks remain.
5. Outlook summary
1)The Fed has seen progress on labor demand, wage inflation, and consumer price inflation.
2)Monetary policy is and will stay restrictive.
3)Economy is losing steam from fiscal support and “excess saving” .
4)Interest rates are higher and banks are tightening lending standards.
5)Labor market has been resilient—job openings are still high and unemployment is low
6)Inflation keeps moving down over time.
Wages need to keep cooling;
Inflation expectations can’t break higher;
Core services ex. rent is most important broad grouping.
7)Fed stays on hold before lowering rates in 2H24.
8)Recession risks remain notable.
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