What is the outlook for the U.S. economy and interest rates? The latest report from the American Bankers Association (ABA) Council of Economic Advisors suggests that the rate hike cycle may be over. According to the report, the Fed is expected to keep rates at their current level through May of next year and then cut them by one percentage point, or 100 basis points, in the middle of next year.
Fed Rate Cut Expected
The ABA’s Economic Advisory Board is comprised of 14 leading economists from large North American banks, and the majority of advisors believe the current tightening cycle is over. This is a decision that takes inflation into account.
While the 10-year Treasury rate is currently above 4%, it is expected to fall to around 3.6% by the end of next year. The 30-year mortgage rate is also predicted to fall from around 8% to around 6%.
U.S. economic growth forecast
U.S. economic growth is expected to slow from an annualized rate of 2.1% in the first quarter to an annualized rate of less than 1.0% during the third quarter. Later next year, economic growth momentum is expected to improve slightly, but we don’t expect any major changes.
With the slowdown in economic growth, inflation is also expected to decline. Consumer price inflation is expected to fall from an annualized rate of about 4 percent this year to 2 percent next year. This is expected to bring inflation closer to the Fed’s 2% target.
What is the likelihood of a short-term recession?
The likelihood of a short-term recession is not great, but it still exists. The Council of Economic Advisers points out that the probability of a soft landing has increased and emphasizes that the Fed must be vigilant in its response to inflation. We believe that balancing supply and demand in goods, services, and labor markets will help slow inflation.
While the likelihood of a recession in the near term has decreased, they warn of a high probability of a recession in the next year, around 50%. In addition to the impact of monetary tightening, these risks can also include event-driven factors such as prolonged government shutdowns and geopolitical tensions.
Home price forecasts
Housing investment has fallen for six consecutive quarters, but is expected to improve slightly through next year. However, it is expected to moderate slightly on a national average basis until the fourth quarter of next year, when home prices begin to recover.
Considering these outlooks will hopefully help you with your investment and financial planning. It’s important to keep an eye on the future of the U.S. economy and have the right strategy in place.
