US to face a mini-recession only; first Fed cut not before 2024

Published Mon, Jun 26 2023 - 8:05 am

The US economy has remained resilient in the first half of 2023 and credit tightening has so far been more modest than expected.

As a result, our US economists have raised our forecasts for US real GDP growth to 1.3% in 2023 (from 1.1%) and to 0.6% (from 0.5%) in 2024 largely due to a less negative outlook for residential construction and business fixed investment.

Housing market activity (particularly for new homes) appears to have bottomed while business investment in structures is firming due in part to fiscal incentives from the “Inflation Reduction” and CHIPS acts.

"We still expect the US economy to contract slightly in 2H 2023. But the cumulative (non-annualised) drop in real GDP of a mere 0.3% versus our previous call for -0.6% for Q3 and Q4 taken together barely merits the label “recession”. “Temporary stagnation” may be the better description," Berenberg analysts said.

"We no longer expect a first Fed rate cut at the end of this year. Instead, we now project that the Fed will start to ease in Q1 2024 and reach a rate of 4% (upper limit of the range) instead of 3.5% by the end of 2024."

"As before, we look for a Fed funds rate of 3.25% at the end of 2025."

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