Inflation has been slow to cool down despite the robust economic activity in the US. Although price pressures are expected to ease as the year progresses, it will likely be a slower process than initially forecasted. The Federal Reserve’s policy decisions will be impacted by this slow inflation cooling, and expectations now point towards policy rates remaining unchanged for a few months before eventual cuts later in the year.
One key factor contributing to the recent economic strength is the larger labor pool brought about by increased net migration flows in 2023. This surge in migration has resulted in a higher number of available workers, with the influx of new labor-force entrants being the highest seen in the last three years. This increase in the labor pool is providing crucial support to the economy and shaping the overall economic outlook.
Despite this, strong hiring has driven impressive economic activity in the first quarter of 2024, fueled by decreasing inflationary pressures that increased consumer spending and kept growth steady. This trend is expected to continue thanks to shifting demographic trends, prompting an increase in the forecast for 2024 full-year GDP growth to 1.5% in real terms.
However, one key challenge facing this growth is continued uncertainty over trade relations between China and other countries. Any disruptions caused by these tensions could lead to a slowdown of global trade and negatively impact US growth prospects.
In conclusion, while economic conditions have been positive so far this year, there are still challenges ahead that could impact US growth prospects going forward. The Federal Reserve’s decision-making process will need to remain patient as they navigate these challenges and make informed policy decisions that support long-term stability and prosperity for Americans.