S&P Global Ratings now expects the U.S. economy to expand 1.5 percent in 2024 on an annual average basis (up from 1.3 percent in our September forecast) and 1.4 percent in 2025 (unchanged from the September forecast), before converging to the longer-run sustainable growth of 1.8 percent in 2026, according to its report “Economic Research: Economic Outlook U.S. Q1 2024: Cooling Off But Not Breaking“.
Businesses are facing higher costs of capital, which will lower capital expenditures and hiring. The unemployment rate will likely rise in the next two years—from 3.9 percent currently to 4.6 percent in 2025—slightly above the longer-run steady state.
As normalization in the product and labor markets continues, disinflation will endure, albeit unevenly. We continue to think that the Federal Reserve will hike federal funds rate by another 25 basis points (likely December) before cuts start in mid-2024.
This report does not constitute a rating action.
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