The robust economic growth in the US has given the Federal Reserve more time to make deliberate decisions regarding interest rates. Despite this, however, inflation has been slow to subside. While price pressures are expected to ease as the year progresses, it will likely be a slower process than initially foreseen.
One of the primary factors contributing to this recent economic strength is the increase in net migration flows seen in 2023. This influx of new workers has resulted in a larger labor pool, which is providing crucial support to the economy and shaping the overall outlook. This trend is expected to continue, leading to an increase in forecasts for full-year GDP growth in 2024 to 1.5% in real terms.
The Federal Reserve’s policy decisions are being impacted by this slow inflation cooling process, with expectations now pointing towards policy rates remaining unchanged for a few months before eventual cuts later in the year. However, despite strong economic activity and an increase in labor-force entrants, inflationary pressures remain high and will need to be carefully monitored by policymakers moving forward.