Current view of macro-economic conditions
Michael Skordeles, AIF®, Head of U.S. Economics at Truist Advisory Services, Inc.
Economic growth is set to step down in 2024 due to the cumulative effects of higher interest rates. That’s particularly true for interest rate sensitive, big-ticket purchases such as homebuying, automobiles, and appliances. Yet, the U.S. has continued to sidestep a recession thanks to consumers, who have proven more resilient than expected.
Retail sales have remained solid, hitting an all-time high in both nominal and real terms.
Manufacturing has slowly begun to recover as core capital goods orders (ex-air & defense) have also hit a fresh all-time high. Inflation remains a wildcard. While it has declined from peak levels in 2022, inflation likely won’t go all the way back down to prepandemic levels.
The resilience of the U.S. economy has pushed Fed rate cuts back a few months from market expectations. We believe it’s likely that the Fed will lower rates in May 2024. That would ease financing pressures on consumers and businesses alike, making a soft landing more achievable.
U.S. Treasury yields are more than a full percentage point (1%) lower than their mid-October peak. While federal deficits and strong government debt issuance may dampen moves lower, yields tend to fall in environments like today – where growth is stepping down and the Fed is preparing to begin loosening monetary policy.