US to see cyclical consumer slowdown, interest rates to decline gradually
Date
7/31/2024 9:50:05 AM
(MENAFN) According to a report by Fitch Ratings, the US Economy is expected to experience a cyclical consumer slowdown that steers clear of a recession, allowing interest rates to gradually decline. The report, released on Monday, highlighted that American consumers are "reasonably well positioned," benefiting from a financial surplus, only gradually increasing interest burdens, and a still low unemployment rate. This situation suggests that a sudden collapse in demand is unlikely, providing a buffer against the more severe impacts of economic downturns.
Nevertheless, Fitch noted that risks persist at this stage of the economic cycle, where demand is slowing while borrowing costs remain elevated. Despite this, both investors and consumers have largely dismissed the fluctuations in market rate cut expectations throughout the year. The report emphasized that core and services inflation continue to exceed central bank targets. Additionally, supply-side risks to inflation, whether from geopolitical tensions or other unforeseen events, could potentially disrupt the disinflationary trend and decelerate the anticipated pace of monetary easing.
Fitch also underscored the significant political uncertainties that could influence the economic landscape, particularly with the US presidential election in November. The outcome of the election could be pivotal for global credit, potentially marking a turning point in policy across various critical areas. The agency indicated that Vice President Kamala Harris, expected to be the Democratic nominee, is unlikely to diverge significantly from President Joe Biden’s policies. In contrast, if Donald Trump wins the presidency and the Republicans gain ground in Congress, Fitch anticipates that several policy areas will become particularly significant to watch. These include trade protectionism, restrictive immigration policies, persistent fiscal pressures, geopolitical strategy, and foreign policy. Additionally, potential changes could include a rollback in climate policies, financial deregulation, privatization efforts, and reforms in social policy, healthcare, housing, and education.
Fitch's assessment reflects a cautious optimism about the US economy's resilience while acknowledging the complexities introduced by political and inflationary risks. The balance of these factors will likely shape the trajectory of US economic policy and its global implications in the coming months.
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