My interview with MNI-US Economic Outlook
Are recessionary risks mounting? As fiscal support remains strong there are limited risks but shifts in spending and hiring decisions due to weakening sentiment and uncertainty might materialize.
I had a very interesting conversation with Pedro da Costa (@MNI) on the US outlook and implications for the Federal Reserve. It is under a paywall, and this is the link. (11th of March 2025 interview)
https://marketnews.com/mni-interview-fed-nearly-done-easing-barring-slump-benigno-1741708988169
Here are some key takeaways:
Fiscal Policy Supports Growth, But Sentiment Is a Concern: No major fiscal tightening is expected, reducing the risk of a recession. However, consumer sentiment is weakening, with uncertainty over tariffs and job security contributing to negative expectations. Consumer fears about potential economic effects could lead to changes in spending and hiring behavior, which might trigger an economic slowdown.
Inflation Risks and Sticky Prices: Inflation remains sticky, particularly in services, and there’s a risk that goods inflation may no longer be a disinflationary force. Tariffs could cause a one-time price shock, but the long-term inflation impact depends on policy details and potential retaliation.
Limited Rate Cuts Expected: The Fed is likely to cut interest rates once or twice this year if inflation continues to ease or if growth slows. However, the rate-cutting cycle is nearly over, barring a deeper economic downturn.
Hawkish Shift and Higher Neutral Rate: A more hawkish composition of FOMC voters in 2025 makes a prolonged pause in rate cuts more likely. Even with one or two rate cuts, the easing cycle is nearing an end due to a growing consensus on a higher neutral rate.