New York Federal Reserve President, John Williams, has revised his economic forecasts, projecting that the U.S. economy will encounter its weakest point at some point in 2024. In an interview published by the Financial Times, Williams indicated that the tightening of monetary policy and the effects of credit tightening would have a negative impact on demand in 2024. Initially, Williams believed that 2023 would experience the slowest growth, but he adjusted his outlook after first-quarter growth surpassed 2%.
Williams expressed optimism regarding economic growth between April and June, suggesting that it was quite positive. However, he anticipates that slower growth will commence this summer. Consumers and businesses should prepare for a decrease in growth throughout the second half of this year and the first half of next year. Williams projected that this year’s growth will land at around 1% or slightly higher.
Although speculation surrounds the possibility of a recession in the U.S. economy, Williams does not include this scenario in his forecast. Instead, he foresees relatively slow growth. The forecast for inflation indicates that the headline personal consumption expenditure index will decline to approximately 3% within the next four quarters, eventually settling at 2.5% next year. As of May, the headline PCE inflation was recorded at an annual rate of 3.8%.
See: Recession fears ease after solid U.S. job report
Economic Forecast: Unemployment Rate and Inflation Projection
According to a recent prediction, the unemployment rate is anticipated to rise to approximately 4% by the end of this year and then further increase to 4.5% by the end of 2024. As of June, the current unemployment rate stands at 3.6%.
The individual making this projection believes that if inflation follows the anticipated trajectory, there would be no need for the Federal Reserve to raise the unemployment rate or impose additional costs on the economy.
During an interview, the same individual reiterated the view that central banks still have some ground to cover in order to establish sufficiently restrictive interest rates and bring inflation back down to 2%. Emphasizing that the objective is to achieve price stability over a few years rather than a decade, he highlighted the commitment of the Fed in this regard.
Following their June policy meeting, Fed officials projected two 25 basis point increases in interest rates for this year.
Economists seem to agree that the Fed is likely to raise its benchmark interest rate by 25 basis points to a range of 5.25%-5.5% after an upcoming meeting in two weeks.
In derivative markets, traders have already factored in a second rate hike.
Addressing another aspect, the individual mentioned that any decision regarding the termination of the quantitative tightening program, which involves shrinking the balance sheet, is not expected to occur anytime soon.
Furthermore, he expressed that there is a perception of stability in the banking sector and relatively less concern about a credit crunch resulting from tightened lending standards.
As of Tuesday morning, U.S. stocks were trading higher. The yield on the 10-year Treasury note also experienced a dip below 4% for the first time since last Thursday.