Stronger economic growth is allowing the Federal Reserve to remain patient, leading to a likely delay in the expected interest-rate cuts. The US economy showed strong growth in the first quarter, fueled by strong hiring and decreasing inflationary pressures which supported consumer spending. This growth is expected to continue due to changing demographic trends, with a forecasted 2024 full-year GDP growth of 1.5% in real terms.
The robust economic activity has led to a slower cooling of inflation, although price pressures are still expected to ease as the year progresses. However, this process is likely to be slower than initially forecasted, affecting the Federal Reserve’s policy on interest rates, with rate cuts expected to begin later this year after several months of rates remaining unchanged.
One of the key drivers of recent economic strength has been a larger labor pool, with a surge in net migration flows in 2023 leading to an increase in the supply of available workers. This increase in the labor force has been the highest in over three years, providing significant support to the economy. Despite fading factors such as fiscal stimulus and rapid inflation cooling, the increase in available workers is expected to continue to support economic growth.