AFMC - Economic Charts Point To Slower Growth And Lower Inflation

2024-05-20 02:53:00 ET

Summary

• The US economy grew 3.1% last year, trouncing widespread calls for a recession and exceeding my relatively sober expectation for 2% growth.
• The correct way to view the interplay between growth and inflation is to first understand that high inflation is bad for growth, while low and stable inflation is conducive to growth.
• On balance, I see the risks pointing to weaker rather than stronger growth, and lower rather than higher inflation.

The US economy grew 3.1% last year, trouncing widespread calls for a recession and exceeding my relatively sober expectation for 2% growth. With growth apparently persisting this year, and with popular inflation numbers marginally higher than the Fed's target, both the market and the Fed now question whether and by how much the Fed should cut rates. The prevailing market wisdom holds that the Fed will cut rates once before year-end; they might move sooner, however, if the economy shows clear signs of slowing down and year over year inflation falls below 2%....

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