UBS economists have revised their outlook for the U.S. economy, although they still foresee a slowdown in 2024.
Specifically, the bank now projects a real GDP growth rate of approximately 1.25% over the four quarters of 2024, which is an upward revision from prior expectations, citing “weak business fixed investment, less support from fiscal policy in 2024 than 2023, and a soft global backdrop.”
In this updated view, economists also expect the labor market to continue expanding, albeit at a slower pace, with only a minor increase in unemployment rates. This more optimistic labor market forecast leads to a reduced expectation of unemployment-related disinflation.
Consequently, the economists have adjusted their core PCE inflation forecast for 2024 upwards by about 0.4 percentage points, now expecting it to reach 2.3% on a year-over-year basis in the fourth quarter, reflecting the diminished impact of labor market slack on inflation.
“We still expect inflation is on a bumpy path lower, but a touch slower than before, and core PCE inflation ends 2025 at 2.1%,” the economists said.
“We expect the FOMC to begin “dialing back” the restrictive stance of monetary policy at the June FOMC meeting, with a 25 bp reduction in the target range for the Federal funds rate,” they added.
They anticipate two more 25 bp rate cuts at the Federal Open Market Committee (FOMC) meetings in September and December, setting the federal funds rate target range to 4.50% to 4.75% by the end of 2024.