The US Federal Reserve is generating excitement and uncertainty in financial markets and among economic analysts around the world. The Federal Reserve has ended its interest rate hike cycle, and some of the most prominent economists at the largest US banks are predicting that rates are likely to be cut by about one percentage point next year. But what does this mean for the US economy and the world at large?
Reviews of the American Bankers Association’s Economic Advisory Committee
According to the latest forecasts of the American Bankers Association (ABA) Economic Advisory Committee, US economic growth is expected to slow markedly in the coming quarters. While the country is likely to avoid a recession, this slowdown could have a significant impact on the economy, increasing unemployment and reducing inflation.
Simona Mocuta, chair of the 14-member Economic Advisory Committee panel and chief economist at State Street Global Advisors, said: “In light of the demonstrated and expected progress on inflation, most Committee members believe that the Fed’s tightening cycle has come to an end“.
This statement suggests that the Federal Reserve has completed its interest rate hiking cycle and is likely to start considering rate cuts in the near future. However, uncertainty remains as to when exactly this change in monetary policy direction will occur.
The ABA Advisory Committee consists of economists from major financial institutions, such as JPMorgan Chase & Co, Morgan Stanley and Wells Fargo & Co. Their forecasts are regularly presented to Fed Chairman Jerome Powell and other members of the central bank’s board in Washington. Their outlook is therefore highly relevant and closely followed by investors and analysts.
The committee expects US economic growth to slow to an annualised rate of less than 1% over the next three quarters. This is due to the Fed’s previous interest rate hikes and tighter credit conditions. In addition, unemployment is expected to rise to 4.4% by the end of next year, from 3.8% in August, and consumer price inflation is expected to decline to 2.2% from 3.2% in July.
While the outlook points to a soft landing for the US economy in the near term, doubts remain about the sustainability of this economic resilience. The Committee considers the odds of a recession next year to be just below 50%.
Therefore, we should note that the economic outlook in the US is a cause for attention and caution in global markets. As the Federal Reserve contemplates changes to its monetary policy, investors and analysts are watching for economic signals that may influence the future of the world’s largest economy.
