Why Interest Rates will fall
The Federal Reserve kept interest rates on hold at the recent May FOMC meeting, but many economic indicators show impending weakness in the US, and point to lower rates in future.
According to the Daily Mail, a TikTok creator named Anna blasted Jamie Dimon for comments about average American's quality of life.
The CEO of the biggest bank in the world, in an interview with the Wall Street Journal, said that “the consumer is in pretty good shape… unemployment is under 4%, it's been there for two years and they still have excess money from COVID.”
Anna may be right.
The reality is that US consumers are suffering. Savings from the pandemic, expressed as a percentage of GDP have depleted.
On the other hand, there is no strong upturn in real wages. While nominal wages are increasing, inflation has eroded disposable income.
The drivers of inflation, on the other hand, are weakening.
Prior to the pandemic, pass-through effects and headline inflation shocks have pushed consumer prices higher.
But Labour market tightness has softened. Unemployment in the US has climbed to 3.9% while nonfarm payrolls are increasing at a much slower rate.
What are the investment implications?
The Federal Reserve is likely to cut interest rates in the second half of the year.
The US Dollar Falls
US Treasury yields decline
China may finally see a bottom in 2024
According to Fidelity’s expectations for the second quarter, most major economies such as the US are in a late-cycle expansion phase. Expectations of monetary easing have contributed to improving global financial conditions, and worldwide manufacturing activity has firmed. China however remains an outlier, as it continued to ease policy in hopes of reaccelerating from its growth slump. The country is in bottoming process with economic growth crawling at a slow pace.
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