October 09, 2024
Quarterly Outlook: Inflation Continues to Moderate, Fed Policy Shifts
With the economy beginning to show signs of slowing, the Fed felt comfortable lowering interest rates in September, with expectations for additional cuts through 2025. Our Quarterly Outlook explores what may be ahead for markets and the economy.
Main Takeaway
The economy has remained resilient, with strong real GDP growth in the second quarter and inflation easing in the U.S. and globally. However, the economy is beginning to show some signs of stress, as unemployment has started to tick up and job growth has slowed. Against this backdrop, Federal Reserve Chair Jerome Powell signaled a significant policy shift was appropriate, with the Fed cutting the federal funds rate 0.50% at its September meeting.
Top Risks
With their recent rate cut, Fed policymakers signaled that they believe a slowing U.S. economy is becoming the primary risk. Moving forward, the markets will be watching consumer spending and unemployment closely to determine if the Fed can engineer a soft landing. U.S. national debt continues to be a concern with the debt-to-GDP ratio approaching 100%. A protracted outcome to the U.S. presidential election could lead to additional market volatility.
Sources of Stability
Globally, inflation continues to moderate with the Fed now joining other central banks, such as Bank of Canada and the European Central Bank, in reducing their respective target interest rates. The combination of lower interest rates and strong wage growth is expected to spur businesses and consumers to increase spending. Although unemployment has begun ticking higher, this is likely because more people are returning to the workforce as permanent layoffs have stayed relatively constant
For our latest perspectives on markets and economic conditions, view ourQuarterly Outlook for Q4 2024.
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