Economic Outlook - May 2024
- At the Federal Reserve’s most recent meeting on May 1st, the Federal Open Market Committee (FOMC) held interest rates steady in a range of 5.25% and 5.50% — its highest level in two decades. The Fed acknowledged the recent inflation setbacks, and signaled its wait and see stance could last well into the year. Fed Chair Jerome Powell also noted that he didn’t think it was likely the Fed would need to consider interest rate increases, and even suggested that rate cuts could begin if the labor market weakened unexpectedly. Separately, the central bank approved plans to slow the pace of reducing its balance sheet starting in June 2024. This decision is an attempt to ensure money markets maintain stability as the Fed extends the wind-down of emergency pandemic stimulus efforts it launched four years ago.
- U.S. Gross Domestic Product (GDP), a measure of the value of all the goods and services produced in the country, rose at an annual rate of 1.6% in the first quarter of 2024. This is a significant step down from the annualized growth rate of 3.4% in the fourth quarter of 2023. The deceleration reflects swings in business inventory and trade, as well as weakening household and government spending. We maintain our expectation for the U.S. economy to grow in 2024, and continue to forecast U.S. GDP to increase by 1.0% – 1.5%.
- Mortgage rates are nearly 50% higher than they were two years ago, with the average rate on the standard 30-year fixed mortgage trending close to 8%. Borrowing costs have risen with the 10-year US Treasury yield which has moved higher for a number of reasons including US debt level concerns, stronger than expected economic growth and a supply-demand imbalance for Treasuries. It’s also worth monitoring the credit card balances of Americans, as they have been steadily climbing to new records. As of the end of the fourth quarter of 2023, outstanding credit card debt reached ~$1.129 trillion. Inflation and higher interest rates are contributing to rising credit card debt, resulting in more Americans struggling to pay down their credit card balances. It is estimated that 49% of credit cardholders carry debt from month to month, up from 39% in 2021.
- Inflation data accelerated faster than expected in March as the first quarter ended, following a hopeful trend toward the Federal Reserve’s target of 2.0%. Inflation as measured by the personal-consumption expenditures (PCE) index rose to 2.8% on a year-over-year basis, an increase of 0.3% from February 2024. Meanwhile, core consumer price index (CPI) inflation increased 0.4% for the month, putting the 12-month inflation rate at 3.5%. These March inflation reports, combined with an acceleration in US wage growth during the first quarter of the year, confirm worries that inflation is stickier than expected.
Sources: Dow Jones Publishing, FactSet, Bloomberg, Bureau of Labor Statistics, U.S. Federal Reserve, Empirical Research Partners
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