Where we stand on the halfway point of the 12 months
The economic shocks at first of 2024 have stabilized, inflation is easing, and economic growth is constant. As a result, there are signs that the Federal Reserve (Fed) may cut rates of interest a couple of times this 12 months. At the identical time, prices have began to fall, and although unemployment has increased barely, the labor market stays strong.
Thursday’s Consumer Price Index (CPI) report showed that inflation fell 0.1 percent in June, the primary decline since May 2020.
But even before the CPI, there have been signs that the economy was continuing to grow while inflation was easing. Those signs were reflected this week in Fed Chairman Jerome Powell’s testimony before Congress and within the semiannual reports from JP Morgan and Goldman Sachs.
Bumpy start
The 12 months began with high hopes for a slowdown in inflation and the prospect of several rate of interest cuts. However, inflation shot up in the primary quarter. As a result, the Fed didn’t see any numbers to justify a rate cut in the primary half of the 12 months.
In addition, the labor market remained stable and the unemployment rate remained at 4 percent or less until last month’s 0.1 percent increase. However, stock markets didn’t appear to care.
Consumer price index shows falling inflation
From June 2023 to June 2024, the core CPI rose by 3.3 percent. This is the smallest annual increase in over three years.
The core CPI measures consumer prices minus the prices of food and energy, which should not taken into consideration because of their volatility.
The decline in the patron price index occurred mostly within the last three months. From April to May, the core index rose by 0.2 percent. This represented a decrease of 0.1 percent in comparison with the previous month. In addition, it was the smallest increase since October.
“We have received another CPI report that points to possible celebratory rate cuts in September,” said Callie Cox, strategist at Ritholtz Wealth Management Yahoo Finance. “What we saw today was essentially a decline in inflation, but not too quickly, and that’s exactly what the Fed wants to see.”
Interest rate cuts
Powell appeared before the Senate Banking Committee and Wednesday before House Financial Services CommitteeIn his semi-annual monetary policy report back to Congress, he said the economy was now not “overheated” and the likelihood of rate of interest cuts was increasing.
Powell told the committees that the speed cut was not tied to the Fed’s goal of achieving an inflation rate of two percent.
“You shouldn’t wait until inflation has come down to 2 percent,” Powell said, “because inflation has a certain momentum. If you wait that long, you’ve probably waited too long, because inflation will go down and fall well below 2 percent, which is not what we want.”
A drop in inflation below two percent would plunge the economy into recession. Conversely, if rates of interest are cut too early, there may be a risk that inflation will rise again.
The Fed measures inflation using the Personal Consumption Expenditure Price Index (PCEPI). This index for May was 2.6 percentThe PCEPI for June shall be reported on July 26.
balancing act
The Fed ensures that price stability for consumer goods and low unemployment are balanced. Powell referred to the 2 elements as mandates.
“We are now at a point where the risks to the two mandates are much more balanced than before,” Powell said, “and that means it’s not just about reducing inflation. Inflation is not over yet, we have more work to do. But at the same time, we need to keep an eye on the labor market.”
growth
Two aspects have stimulated growth this 12 months: consumer spending and investment spending.
Although consumer spending stays a key aspect of current economic growth, it’s slowing. At the identical time, wages have continued to rise. In fact, in April Wage growth was 4.7 percent, while inflation was 3.4 percent. in response to Statista.
A half-year investment evaluation of JPMorgan Chase & Co. believes that these aspects will contribute to further growth.
Morgan’s Mid-Year Investment Outlook states: “…consumer spending has remained remarkably strong despite dwindling pandemic-related savings. Given a prolonged period of positive real wage growth and significant recent wealth gains, consumer spending is likely to continue to drive the expansion through 2025.”
Analysis of Goldman Sachs is of an analogous opinion.
Goldman noted that consumer spending rose 2.6 percent in April (in comparison with three percent a 12 months earlier), while retail sales rose just 0.1 percent in May, and described consumers as “healthy.”
“This is due in part to the relatively high employment rate, relatively high household wealth and low debt,” Goldman said. “The team forecasts real (inflation-adjusted) year-over-year growth in U.S. consumer disposable income of 2.5% in the fourth quarter of 2024.”
Stock market
This 12 months will be considered the 12 months wherein the world officially recovered from the crash brought on by the 2020 pandemic.
The S&P 500 was the leader. The index rose 14.5 percent in the primary six months of the 12 months. However, much of this increase is because of AI and corporations that profit from generative AI.
Morgan says there are other aspects contributing to stable capital spending despite high rates of interest and a credit crunch caused partially by a small variety of Bankruptcies last 12 months.
“This resilience is largely due to healthy corporate balance sheets, government stimulus and rising demand for AI technologies,” Morgan said. “This is likely to continue through 2025, offering the potential for continued moderate economic growth, barring major shocks.”
