ACTV - U.S. Recession Risks Recede But Growth Fears Linger

2024-02-09 09:30:00 ET

Summary

• Strong GDP and jobs growth shows that the US economy continues to shrug off high borrowing costs and tight credit conditions, largely through robust government spending and consumers running down their savings.
• These factors will be less supportive in 2024 and inflation is on the path to 2%, so the Federal Reserve has the room to cut interest rates sharply.
• The employment cost index, the broadest measure of labour costs, is slowing and the decline in the proportion of workers quitting jobs to move to another suggests a less frenetic jobs market, which will help cool wage pressures.

By James Knightley , Chief International Economist

Fed remains wary about easing policy too soon

After the Federal Reserve’s dovish shift at the December FOMC meeting, where it signalled it was anticipating cutting the Fed funds target rate by 75bp in 2024, markets pushed on aggressively. Subdued inflation prints led the market to go so far as to price nearly 175bp of rate cuts starting at the March FOMC meeting. However, fourth-quarter GDP and January payrolls subsequently beat all expectations and Fed officials have since moved to downplay the prospect of any imminent easing. While employment and inflation goals are “moving into better balance”, Fed Chair Jerome Powell suggested that the central bank won’t cut until it has “gained greater confidence that inflation is moving sustainable toward 2 percent”....

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