Inflation in the U.S. has been cooling down. In March 2023, the number dropped down for the ninth time in a row to 5%. Owing to the recovery noted, Citigroup has pushed back its recession forecast. It now expects the U.S. economy to step into recession only in the fourth quarter of 2023. Notably, it earlier expected the same to pan out in the third quarter of the year.
Also Read: U.S. Inflation Falls To 5% In March: Lowest In 2 Years
With the effects of the banking sector turmoil continuing to recede, economists at Citi expect a macro recovery. Economists at the investment banking giant have raised the global economic growth forecast for this year from 2.2% to 2.4%. Along with U.S.’s growth, the revision also mirrors Eurozone and China’s economic improvement.
With central banks tightening policy to control inflation, global growth is expected to be below trend. Next year, i.e. in 2024, the global economy is expected to grow 2.1%, lower than the previously anticipated 2.5%. This is because both the U.S. and Eurozone economies continue to feel the pinch of higher interest rates. In its note, economists said,
“While the acute phase of the banking tensions appears to be abating, we continue to see chronic challenges associated with higher interest rates.”
Interest rate cuts to happen anytime soon?
Interest rate deductions do not seem to be on the cards for now. According to Bank of America’s monthly global fund manager survey, the Fed will most likely start rate cuts in the first quarter of 2024 only. Around 35% of investors expect the Fed to start an easing cycle in Q1 2024, followed by 28% anticipating in Q4 2023. On the contrary, 14% expect rate cuts to start in Q3 2023, while 10% forecast the same to pan out in Q2 2024. That said, it should be noted that an overwhelming 84% of fund managers expect global consumer price inflation to head lower.
U.S. policymakers, however, continue to maintain a hawkish stance. The Federal Reserve has been increasing interest rates month after month. Despite being in the midst of a banking crisis, the FED shot up the rate by 25 basis points last month. Doing so brought the policy benchmark to a target range of 4.75% to 5%. According to Federal Reserve Bank of Cleveland President Loretta Mester, policymakers should push up the benchmark rate above 5% this year. In fact, the official also suggested that the Fed should hold the rate there for a while to stamp out inflation.
Also Read: Federal Reserve Will Need To Raise Interest Rates Above 5%: FED Official