The US economy is thriving despite slowing pandemic recovery, with low unemployment and high spending. However, this strength poses a challenge in addressing rising inflation. The IMF projects continued growth, higher than Europe's, but warns that overheating is a risk. To tackle inflation, the Federal Reserve will keep interest rates high, despite concerns, as the economy remains resilient and robust.
Inflation remains high despite some cooling in March, with prices rising at an annual rate of 2.8% excluding food and energy. While spending remains strong, the personal saving rate has fallen as households dip into savings to cope with rising costs. The Federal Reserve will likely continue to raise interest rates to combat inflation, which is still well above its target of 2%.
The stock market dropped sharply due to a disappointing economic report. GDP growth was slower than expected, and inflation remained high. This suggests a challenging economic environment of slow growth and rising prices, raising concerns about the Federal Reserve's ability to lower interest rates anytime soon. The news also added to concerns about earnings from tech companies like Meta, which fell sharply after releasing weaker-than-expected revenue guidance.
If former President Trump is re-elected, he plans to exert significant control over the Federal Reserve, an independent institution that sets interest rates. This includes the potential for serving as a board member, firing the current chair, and aligning Fed policies with his administration's goals. While these proposals are not official, they raise concerns about political interference in an institution designed to operate independently from political pressure.
Economic growth slowed to 1.6% in the first quarter of 2024, below expectations. Meanwhile, inflation jumped to 3.4%, its highest rate in a year. Consumer spending also slowed, indicating consumers are starting to feel the pinch of rising prices. The report suggests the economy is facing challenges, with slower growth and higher inflation.
The rising cost of houses and high mortgage rates are making homeownership harder to achieve. However, the lack of homes to buy is balancing out these increases. The Federal Reserve will try to lower interest rates, which may help buyers. Additionally, the "build-to-rent" market is becoming increasingly popular. This involves constructing homes that will only be rented out, which provides a more affordable option for many people.
The housing market is seeing record new home sales, but prices have fallen slightly. This is likely due to a lack of existing homes for sale, making new homes more attractive.
However, the manufacturing and service sectors are showing signs of weakness. This could lead to job losses and cause the Federal Reserve to slow its pace of interest rate hikes to stimulate the economy. The market reaction to this news has been mixed.
The US stock market corrected after a strong rally. The Nasdaq declined heavily due to tech company declines, including Netflix, which disappointed with its earnings. The Fed's cautious stance on interest rates also influenced the market. Some chip-related stocks fell despite recent hype, while American Express jumped after a positive earnings report. Power Mount Global surged on acquisition rumors.
Political tensions between Iran and Israel are pushing up oil prices, outweighing the impact of supply and demand. An escalation of the conflict could severely disrupt oil flow through the Strait of Hormuz, driving prices even higher. Gold prices may fluctuate in the short term but continue to be supported by geopolitical uncertainties.
The Federal Reserve's goal of 2% inflation faces challenges in 2024. Inflation has declined but remains above the target. The Fed is cautious before cutting interest rates until the data supports a clear path to 2%. Housing inflation, especially in rent costs, remains a concern. The Fed wants more time to monitor the economy and investigate if these costs will decline as expected.
The US stock market experienced a sharp drop on Wednesday, extending a recent downward trend. Investors are uncertain about interest rate cuts by the Federal Reserve, which has lowered their expectations from five or six cuts to just one or two. Additionally, disappointing earnings from large companies like Travelers and Prologis contributed to the decline. However, some individual stocks like United Airlines performed well, indicating strong demand in certain sectors.
New home construction has taken a surprising nosedive, raising concerns about the housing market's health. While the rental market remains strong, the supply of new homes is slowing down, making it harder for buyers to find affordable homes. Despite this, the Federal Reserve is keeping an eye on the housing market as they consider interest rate decisions. The economy is showing mixed signs, so it's important to monitor trends over a period of time to get a clearer picture.
