Last week's macro data provided further evidence that the US economy is starting to slow from the rapid pace of growth seen in 2023. The 1.6% annualized GDP increase in the first quarter was well below the market consensus of 2.4% and reflected broader economic growth. Based on a slowdown in both domestic spending and net exports.
U.S. households continue to suffer from high inflation, a slow trend in income growth, and unusually low levels of precautionary savings, data show, with consumer spending growing at an annualized rate of 2.5% in the fourth quarter of 2023, down from 3.3%. % was shown to have slowed down.
While one might expect the weakening growth outlook to increase expectations for rate cuts in the short term, the faster-than-expected rise in inflation in the first quarter has actually solidified market interest rate expectations slightly.
Core PCE inflation, the Fed's preferred metric, beat expectations at 3.7% in the first quarter (versus a consensus of 3.4%) and was well above 2% in the fourth quarter of 2023. While some of the recent drivers of higher inflation may prove to be temporary, statistics such as housing and insurance costs have nevertheless hardened interest rate expectations and confirmed the theme of “stagflation” in the US economy.
In the United States, CPI and PCE inflation have been higher than expected in recent months, and there is a possibility that the Fed may pause its interest rate cut plans ahead of its May 1 monetary policy meeting. suggested a 75 basis point rate cut in 2024, but media comments and speeches by key members since then suggest their outlook is more hawkish in recent weeks.
In contrast, last week's eurozone statistics suggest that growth in the currency area is accelerating to some extent. Eurozone preliminary PMIs showed that the pace of private sector growth accelerated in April. The euro zone composite PMI rose to 51.4 from 50.3 in March, the highest level in 11 months in the survey.
This rise was particularly driven by the continued recovery in German research, particularly in the services sector. Indeed, there is growing evidence that Germany's recently moribund economy may have hit rock bottom, with consumer and business surveys released last week showing a stronger-than-expected rise in April. This is mainly due to brighter future expectations for the German economy.
The prospect of short-term interest rate cuts from the ECB is likely behind the upturn in German sentiment, but it remains to be seen whether this upturn will translate into a sustained rise in GDP growth in the euro zone's largest economy.
Looking ahead to next week, the main focus will be on the Fed's next monetary policy decision, expected after the close of European trading on Wednesday. As mentioned above, US futures contract prices have fluctuated widely since his last Fed meeting in March amid signs that disinflation is stalling in the first quarter.
Additionally, Fed officials have struck a more hawkish tone in recent weeks, with the general consensus being that a rate cut is unlikely until there is evidence that inflation is still back on target. It is a message.
