After stronger-than-expected growth so far, the U.S. economy is poised to slow down for the rest of 2023 and come in below trend for the next two years.
“The balance of risk to our baseline forecast is tilted to the downside,” says S&P Global Ratings, which published on Monday its latest economic outlook, “Economic Outlook U.S. Q4 2023: Slowdown Delayed, Not Averted.”
“While we now expect the economy to expand 2.3% this year (up from 1.7% in our June forecast), we see growth slowing to 1.3% in 2024 and 1.4% in 2025, before converging to trend-like growth of 1.8% in 2026,” S&P shares.
In particular, S&P data indicate that labor-market imbalance has diminished during the summer, and high inflation continues to unwind. “Still, the last mile of disinflation is going to take longer, with core inflation taking another 12 months to get comfortably near the Fed’s 2% target,” it says. “Policy interest rate appears to be, at or close to, a peak.”
As such, S&P Global Ratings anticipates one more rate hike in this tightening cycle, but adds that monetary stance will continue to tighten in real terms, peaking in the second quarter of next year.
“Our baseline forecast is one of an ever-elusive “soft landing” occurring, but we are not as optimistic as the Fed (some have called the Fed’s outlook a “perfect” landing scenario),” S&P concludes. “We expect the real economy to be considerably weaker next year and inflation closer to target in the second half, which will persuade the Fed to cut rates more aggressively than what it has penciled in—with rates likely landing at 4.4% and 2.6% by the end of 2024 and 2025, respectively.”
