Highlights
“In light of the 1st quarter data, the Federal Reserve foreshadowed a wait-and-see plan that may delay the expected reversal of its hawkish interest rate policy.”
Summary
With inflation again proving stubborn in the 1st quarter of 2024, the labor market remaining strong, and domestic production continuing to grow, albeit at a slower pace, a soft landing for the US economy is still widely anticipated, though it may prove slower to develop than hoped. In light of the 1st quarter data, the Federal Reserve foreshadowed a wait-and-see plan that may delay the expected reversal of its hawkish interest rate policy.
A frequent bright spot for the economy in recent years, job growth exceeded expectations with broad gains among nonfarm industries. Capital markets posted a strong 1st quarter despite the continued elevation in interest rates, and consumer sentiment continued its rebound from June 2022’s historic low.
Despite increases in personal spending, particularly for services, domestic production growth lagged behind expectations. Housing market data was similarly mixed, constrained by elevated interest rates and limited inventory. Home sales continued to decline, while prices in major cities rose further.
Despite the quarter’s disappointing real GDP and inflation data, FOMC members’ near-term projections of domestic production and unemployment were slightly more optimistic. Projections of longer-term economic performance changed little.
A multifactor indicator of economic strength, the Philadelphia Fed’s coincident index of economic activity in the U.S. rose 0.3% in March 2024 and 0.7% during the 1st quarter. For the quarter, coincident indexes increased in 43 states, decreased in 4 states, and remained unchanged in 3. Coincident indexes reflect unemployment, payroll employment, manufacturing hours, and wages and salaries.