Mixed Economic Signals: Different Views on the U.S. Prospect
The latest data from the New York Fed's consumer expectations survey show that U.S. consumer inflation expectations in November fell to the lowest level since April 2021. Still, there is a sharp contrast in the market's predictions for the future of the U.S. economy. Median expectations for inflation over the next year fell for the second consecutive month, with inflation at 3.4% in November, down from 3.6% in October. Inflation expectations for the next three and five years are stable at 3% and 2.7% respectively.
The recent decline in inflation expectations has been attributed to various factors, including a decline in expectations for higher gasoline prices and a decline in rent and college tuition expectations to their lowest levels since January 2021.
However, investment banks and asset managers have differing forecasts for the stock market and currency movements in 2024, reflecting deep disagreements over whether the U.S. economy will slip into a protracted recession with possible repercussions for the global economy.
In stark contrast to the consensus that formed a year ago, when many predicted the U.S. economy would slip into recession, a prediction that never materialized despite steep interest rate cuts, the world's largest economy grew 5.2% in the third quarter of this year.
Buoyed by a strong rebound in stocks and bonds last month, market participants are bracing for a challenging start to the new year. The general short-term consensus suggests that inflation and interest rates are falling steadily.
Behind the market's rising expectations for the Federal Reserve to cut interest rates is the result of inconsistent recent economic data. Although the Federal Reserve has significantly raised interest rates by 525 basis points in the past year, the latest revised data from the U.S. Department of Commerce showed that the annualized growth rate of domestic GDP in the third quarter surprisingly reached 5.2%, 0.3 percentage points higher than the previous year.
The current economic performance of the United States is impressive. It seems that it has not been affected by the Federal Reserve's sharp interest rate hikes. Instead, it is in a leading position among developed economies. However, ongoing concerns about the U.S. economic outlook remain.
The recent decline in inflation expectations has been attributed to various factors, including a decline in expectations for higher gasoline prices and a decline in rent and college tuition expectations to their lowest levels since January 2021.
However, investment banks and asset managers have differing forecasts for the stock market and currency movements in 2024, reflecting deep disagreements over whether the U.S. economy will slip into a protracted recession with possible repercussions for the global economy.
In stark contrast to the consensus that formed a year ago, when many predicted the U.S. economy would slip into recession, a prediction that never materialized despite steep interest rate cuts, the world's largest economy grew 5.2% in the third quarter of this year.
Buoyed by a strong rebound in stocks and bonds last month, market participants are bracing for a challenging start to the new year. The general short-term consensus suggests that inflation and interest rates are falling steadily.
Behind the market's rising expectations for the Federal Reserve to cut interest rates is the result of inconsistent recent economic data. Although the Federal Reserve has significantly raised interest rates by 525 basis points in the past year, the latest revised data from the U.S. Department of Commerce showed that the annualized growth rate of domestic GDP in the third quarter surprisingly reached 5.2%, 0.3 percentage points higher than the previous year.
The current economic performance of the United States is impressive. It seems that it has not been affected by the Federal Reserve's sharp interest rate hikes. Instead, it is in a leading position among developed economies. However, ongoing concerns about the U.S. economic outlook remain.
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