US economic outlook: Prospects are brightening, but the economy is not completely in the clear

Strong growth out the gate

Prospects are brightening, but the economy is not completely in the clear. We've penciled in a slightly stronger growth trajectory in this update, but it still represents a moderation in growth in 2024 relative to last year. We continue to forecast the first rate cut from the FOMC will come in May.

Better-than-anticipated real GDP growth in the fourth quarter of last year as well as a blowout January jobs report have led us to upwardly revise our growth forecast this year. We now anticipate real GDP will be about 1.4% higher by the fourth quarter of this year relative to Q4-2023, which is up from a 0.8% gain in our January forecast.

The upward revisions to our growth forecast are primarily concentrated in stronger consumer spending, as a firmer hiring environment suggests real income growth will remain more of a tailwind to consumption this year than previously thought. A more resilient economic backdrop can risk interrupting the downward trend in inflation, but we anticipate inflation will continue its downward trajectory in coming months, opening the door to Fed easing.

We have not made any changes to our outlook for monetary policy. We forecast the FOMC will cut rates by 25 bps at its May monetary policy meeting followed by another 100 bps of easing through year-end. If we're off by a meeting, risks are skewed toward June rather than March for the first cut, in our view. We also still anticipate the FOMC will announce a plan to slow QT at the June meeting.

Economic prospects have brightened in the past month, though storm clouds remain on the horizon. Fed patience will cause economic uncertainty to continue, yet we ultimately anticipate the economy will avoid recession and experience a subdued period of growth this year.

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