US Key Themes 2024 – From stagnation to recovery

We expect a material slowdown in the US economy in the next couple of quarters to give way to a modest acceleration in GDP growth in the second half of 2024. In effect, the Fed will pull off a “soft-ish” landing. Inflation will continue to fall but at a much more gradual pace than in 2023 driven by a gradual loosening of labor market conditions. This will prompt the Fed to start easing policy toward the end of the year, but rates will be higher for longer than current market pricing. Beyond these headlines, three themes will be key to shaping the economy in 2024.

This research report expands on these key themes:

1. The Fed will get lots of attention, but fiscal policy will be a key driver of the outlook. We expect the Fed to remain on hold for most of the year but the communication on policy moves is likely to oscillate as it attempts to manage financial conditions. In the background, and largely ignored by the consensus, tight fiscal policy will be a key force slowing economic momentum.
2. Tight credit and political uncertainty will ensure another year of limbo. The impact of past monetary tightening will keep credit markets frozen and real estate transactions low, preventing price discovery in housing and commercial property markets. Domestic and international political uncertainty will impede activity by increasing the option value to delaying hiring and investment.
3. The economy will remain highly desynchronized. Just like 2023, we expect a highly differentiated sector outlook. The services sector should slow in line with weaker consumer spending, while the industrial side of the economy is set for a modest rebound.