US outlook: a soft landing supported by the Fed

In breve

Fears of a US recession have abated, but we still expect growth to ease from 2.2% to 1.6% in 2020.
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Highlights:

  • Fears of a US recession have abated, but we still expect growth to ease from 2.2% to 1.6% in 2020. The end of the fiscal stimulus and headwinds to capex from existing tariffs and lower profitability will be the main drag.
  • Growth will be increasingly reliant on consumption, supported by the labor market and subdued inflation. Interest rate-sensitive components of demand, especially housing, will enjoy the boost from lower interest rates.
  • Politics remains the biggest risk factor. The choice of who will oppose Trump in the November election could become another big source of uncertainty from Q2 on. The trade truce with China has reduced tail risks, but a quick and meaningful rollback of existing tariffs appears unlikely.
  • The dovish turn taken by the Fed has been instrumental in delivering a soft landing. Our outlook of relatively weak growth in the first part of the year makes another, final, rate cut in Q2 more likely than not. The announced policy changes and especially a likely move towards an average inflation targeting will give a dovish tilt to the stance.

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US OUTLOOK: A SOFT LANDING SUPPORTED BY THE FED

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