Market Outlook 2q24

Market & Macroeconomic Outlook 2Q24 + FED’s bonus

Fed Sees Progress on Inflation, Rate Cuts Could Be in Sight


After the numbers given in the market & macroeconomic Outlook of 2Q24, the Federal Reserve concluded its latest monetary policy meeting with a decision to maintain interest rates unchanged. The central bank emphasized its continued commitment to achieving both maximum employment and price stability, the dual mandate assigned by Congress.
While acknowledging substantial progress in taming inflation, which has fallen from a peak of 7% to 2.5%, the Fed stressed the need for persistent efforts to bring inflation back to its 2% target. To this end, the central bank will continue monitoring economic data closely and stands ready to adjust monetary policy as needed to address evolving conditions.
The economy has shown signs of moderation in recent months. GDP growth has cooled to 2.1% from 3.1% in the previous year, and consumer spending, though still robust, has softened from its rapid pace of the prior year. The unemployment rate has ticked up slightly to 4.1% but remains at a historically low level.
The Fed’s decision to maintain rates reflects a delicate balancing act between supporting economic growth and curbing inflationary pressures. By holding rates steady, policymakers aim to allow the economy to gradually adjust to a less accommodative monetary policy stance while keeping inflation expectations anchored.
The central bank reiterated its data-driven approach, indicating that future policy decisions will hinge on the incoming economic data. While inflation has eased significantly, policymakers remain vigilant and prepared to act if necessary to achieve their dual mandate goals.


Economic Overview


GDP


Gross Domestic Product (GDP) growth rates showed resilience, indicating a robust economic activity amidst challenging conditions, proving how strong the US economy is. The U.S. Bureau of Economic Analysis has released an “advance” estimate indicating that the real gross domestic product (GDP) increased at an annual rate of 2.8 percent in the second quarter of 2024. This represents a significant increase from the first quarter, during which the real GDP increased by 1.6 percent. The increase in real GDP primarily reflected increases in consumer spending, private inventory investment, and nonresidential fixed investment.

It’s important to note that this GDP is an estimate and a more comprehensive “second” estimate for the second quarter is scheduled for release on August 29.

Source: US Bureau of Economic Analysis

Core CPI


Inflation, measured by the core CPI (Consumer Price Index) fell 0.1% in June, showing a year-over-year increase of 3.3% in June, one of the lowest monthly growth rates since the pandemic began. This marks a more significant decrease from the previous month’s reading, offering more than just a hint of potential moderation in inflationary pressures. However, it’s important to consider that it is still above target.
While overall inflation still rose 3% annually, this is a significant slowdown from the peak of 9.1% reached in June 2022.

Source: US Bureau of Economic Analysis

Unemployment

Job growth accelerated in June, with payrolls increasing by a solid 206,000. While this was better than anticipated, the unemployment rate edged up to 4.1%. Revisions to earlier data indicate slightly weaker hiring in April and May, bringing the average job gains for the quarter to 177,000 per month.

While unemployment rate is still historically in the lows, this increase, combined with underwhelming job growth, has raised concerns about a potential economic slowdown. As a result, expectations for a Federal Reserve interest rate cut in September have grown, with policymakers facing pressure to stimulate economic activity and prevent a more severe downturn.

Source: US Berau of Labor Statistics

The second quarter of 2024 presented a complex economic landscape characterized by a delicate balancing act between fostering growth and taming inflation. While the Federal Reserve made progress in cooling inflation, the unexpected uptick in unemployment in July introduced a new layer of uncertainty. Despite these challenges, the central bank maintained a cautious stance, holding interest rates steady while closely monitoring economic indicators. As the Federal Reserve navigates this complex terrain, market participants will be closely watching for signs of a potential rate cut in September, and its implications for both economic growth and inflation.

The interplay between monetary policy, labor market conditions, and inflation will continue to shape the overall economic outlook in the coming quarters.