“The Claman Countdown” panelists Simeon Hyman and John Lonski explain the Federal Reserve’s favorite inflation number.
The U.S. economy likely ended 2023 on solid footing, but momentum is expected to have cooled since the start of the year as consumers grapple with high inflation and high interest rates.
Economists expect the Commerce Department's first reading of gross domestic product, the broadest measure of goods and services produced in the country, to show the economy grew 2% on an annual basis in the three-month period from October to December.
This would be a significant decline from the 4.9% reported in the third quarter.
“Incoming data continues to point to a robust but cooling U.S. economy, led by consumer spending due to a tight labor market, higher-than-expected holiday spending and moderately strong balance sheets,” Bank of America analysts wrote in a note to clients on the upcoming GDP release.
WHEN WILL THE FEDERAL RESERVE START LOWERING INTEREST RATES?
A worker grinds a weld on a safe being manufactured at Liberty Safe Company in Payson, Utah, March 22, 2022. (George Frey/Getty Images/Getty Images)
Bank of America strategists expect non-consumer spending to have slowed starting in the third quarter, while non-residential fixed investment growth has remained muted. Housing construction is also expected to see a “marginal increase at best” amid ongoing headwinds from high mortgage rates, low inventory and lack of affordability.
The economy has proven surprisingly resilient despite experts predicting the Federal Reserve's aggressive interest rate hike campaign would plunge it into recession. However, there are signs that a slowdown is finally occurring amid tighter monetary policy.
Employment growth is weakening. The housing market, vulnerable to higher interest rates, is in a prolonged downturn and consumer spending is showing signs of slowing.
The inflation battle faces a “difficult” last mile
Many economists expect a further slowdown in the coming months as higher interest rates continue to impact the economy.
People shop at a grocery store in Los Angeles on October 12, 2023. (Mario Tama/Getty Images / Getty Images)
Higher borrowing costs tend to lead to higher interest rates on consumer and business loans, which slows the economy by forcing employers to cut spending.
Still, optimism is growing on Wall Street that the Federal Reserve could successfully pull off that elusive soft landing.
GET FOX BUSINESS ON THE GO by CLICKING HERE
Bank of America, Goldman Sachs and UBS have raised the likelihood that the U.S. economy will avert a recession and cool down without a sharp rise in the unemployment rate next year as a result of multiple Fed rate cuts. At their last meeting, central bank policymakers planned three quarter-point interest rate cuts in 2024 and lowered their inflation outlook for the coming year.
“We continue to view a soft landing as the most likely outcome in 2024, although a number of headwinds and risks mean the probability of recession is around 40%,” said Gregory Daco, chief economist at EY. “Consumers are likely to remain cautious with their spending as they face 'cost fatigue' and less dynamic labor market conditions.”