The US is in a ‘critical moment’ of waiting to see what will happen next as inflation continues to ease and the Federal Reserve considers when to lower interest rates, according to National Retail Federation’s (NRF) chief economist Jack Kleinhenz.
US is at a critical juncture as inflation eases and the Federal Reserve considers lowering interest rates, as per NRF’s chief economist.
GDP growth slowed from 3.4 per cent in Q4 2023 to 1.4 per cent in Q1 2024 due to high interest rates.
Positive signs include rising disposable income, increased personal consumption, and a resilient labour market.
For the past two years, the Fed has been balancing high interest rates to curb inflation against the risk of slowing the economy too much and triggering a recession. “We’re at a critical moment as consumers, businesses, investors, and others wait to learn how they will need to adjust their plans for future economic conditions. Fortunately, the risks for monetary policy look balanced at the moment,” said Kleinhenz in the July issue of NRF’s Monthly Economic Review.
Kleinhenz’s comments highlighted a significant slowdown in year-over-year (YoY) gross domestic product (GDP) growth, which fell from 3.4 per cent in the fourth quarter of 2023 to 1.4 per cent in the first quarter of this year, its lowest point since spring 2022. This deceleration was largely driven by slower consumer activity, a direct result of high interest rates aimed at controlling inflation.
YoY inflation, as measured by the Personal Consumption Expenditures Price Index, dropped from 3.4 per cent in the first quarter to 2.6 per cent in May, the second month of the second quarter. The report noted that most inflation was concentrated in the price of services, which increased by 3.9 per cent in May, while prices for goods decreased by 0.1 per cent.
Despite these challenges, there are positive signs in the economy. Disposable personal income rose by 3.7 per cent YoY in May, personal consumption increased by 5.1 per cent, and the savings rate climbed to 3.9 per cent, its highest level in four months. The labour market also showed resilience, driving income growth ahead of inflation. Employment rebounded strongly in May with a gain of 272,000 jobs, following an increase of 165,000 jobs in April. The average monthly job gains through May were 248,000, just below the 2023 average of 251,000.
The June University of Michigan Consumer Sentiment Survey reflected concerns about the impact of high prices and slowing wage growth on family finances, but also showed consumer confidence that inflation will continue to moderate.
Fibre2Fashion News Desk (DP)
