In a recent update, UBS economists have revised their outlook for the U.S. economy in 2024, predicting a slowdown in real GDP growth. The bank now projects a growth rate of approximately 1.25% over the four quarters of the year, down from previous expectations.
The revision is due to several factors, including weak business fixed investment, less fiscal policy support in 2024 compared to 2023, and a soft global backdrop. Despite this projected slowdown, economists anticipate that the labor market will continue expanding at a slower pace, resulting in only a slight increase in unemployment rates. This more positive labor market forecast leads to a reduced expectation of unemployment-related disinflation.
As a result of these changes, core PCE inflation for 2024 has been adjusted upwards by around 0.4 percentage points to reach 2.3% on a year-over-year basis in the fourth quarter. UBS economists believe that inflation will decrease gradually but at a slower pace than previously forecasted, with core PCE inflation expected to end 2025 at 2.1%. They anticipate that the Federal Open Market Committee (FOMC) will begin to adjust the restrictive stance of monetary policy at the June meeting by reducing the target range for the Federal funds rate by 25 basis points. Two more 25 basis point rate cuts are expected at the FOMC meetings in September and December, bringing the federal funds rate target range to 4.50% to
