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2024 US macro outlook

Tight Monetary Policy to Hit Growth as Pandemic Tailwinds Fade

  • Real US GDP growth is expected to slow from an estimated 2.4% in 2023 to 0.8% in 2024, well below potential, and tip into a mild recession in the first half of 2024.
  • Consumption growth will slow as higher interest burdens reduce disposable income. Business investment will contract due to higher borrowing costs, election uncertainty, and reduced tax incentives.
  • Residential investment will likely fall in the near term but remain supported by structural undersupply.

What Landing? The Labour Market is Key

  • While 2023 saw “immaculate disinflation”, reducing inflation further to the 2% target will require a softening labour market.
  • The unemployment rate has risen from 3.5% to 3.9% and is expected to increase to 4.5% by mid-2024 through a decline in job openings and gradual rise in layoffs.
  • Small businesses face sharply higher financing costs and are more likely to reduce labour costs.

Inflation – Where Now?

  • Core PCE inflation is expected to fall from 3.5% in Q4 2023 to 2.6% in Q4 2024, led by goods deflation and slowing rental inflation.
  • “Supercore” services inflation will decline gradually, remaining above pre-pandemic levels and the Fed’s 2% target.
  • Sticky inflation is expected as wage growth declines gradually in labour-intensive industries with shortages.

Fiscal Policy – Peak Expansion is Behind Us

  • Fiscal stimulus boosted 2023 growth but its impact will turn slightly negative in 2024 as the deficit narrows.
  • No major pre-election legislation is expected given congressional division. Significant post-election consolidation also seems unlikely.

Fed on Hold in Early 2024, with Rate Cuts Likely to Start in June

  • The Fed is expected to keep rates on hold until June 2024 before cutting rates gradually to 4-4.25% by end of 2024 amid slowing growth and a weakening labour market.
  • Quantitative tightening is projected to continue into late 2024 before ending.

A Tight Elections Race

  • A tight three-way race is expected for the presidency and both houses of Congress in the 2024 elections.