US: soft landing will require more patience on rate cuts

In Short

The US economy is proving much more resilient than many (including ourselves) expected in the wake of the historical steep policy rate increases. The economy enters 2024 with solid balance sheets and strong real disposable income growth, as the labour market rebalances without any increase in layoffs so far.


  • We significantly upgrade our 2024 US growth forecast from 1.5% to an above consensus 2.1%. Last year ended with a much stronger than expected demand, which is set to spill over into Q1. Strong real income growth is offsetting fading excess savings in driving consumption, while solid balance sheets are cushioning the impact of higher yields on corporate capex. 
  • The middle part of the year should then see a rather shallow downturn, followed by a Q4 recovery thanks to easier financial conditions. The unemployment rate is expected to peak at around 4.2% by then, while core PCE inflation should continue to moderate and end the year at 2.2% year on year.
  • The Fed is unlikely to start cutting rates before May: the gradual downturn allows it to wait for firm data on disinflation. We see the Fed funds rate down by cumulated 100bps this year and to reach our estimate of the neutral range (2.75-3.0%) by the end of 2025. We expect the Fed to trim quantitative tightening (QT) in spring and stop it at the beginning of 2025.

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US: soft landing will require more patience on rate cuts

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