The surprising strong jobs report for January left investors stunned by the resilience of the U.S. economy. It should end talk of recession and quick Fed easing.
Besides the US Fed, ECB is increasingly confronted with calls for rate cuts given that deteriorating economic momentum shows the eurozone economy has more problems digesting higher rates than the US. The downward surprise in November inflation brought forward the market pricing of the first ECB rate cut to March 2024, with a total of 125 basis points of cuts priced in for 2024.
Inflation falling, unemployment low, and the Federal Reserve could cut interest rates. Wells Fargo economists predict a soft landing, but still see elevated recession risk due to signs of weakness in the labor market. The effects of higher interest rates may be slower this time as companies refinance debt and buffers like savings and credit card borrowing dwindle. The return of inflation could put policymakers in a tight spot, unable to cut rates and potentially considering rate hikes. Unforeseen events like disruptions in shipping lanes or new threats could upset the balance and create job loss.
While some American economists claim a soft landing is possible next year, conservative media outlet The Epoch Times recommends Americans buckle up for a bumpy 2024.