U.S. Economic Outlook in 2024: Soft Landing and Rate Cut Cycle

There are both consensus and disagreement in the market about the US economy and policy trends in 2024. The consensus is that the strong consumer demand of US residents is unsustainable, and the negative impact of high interest rates will gradually emerge, leading to a slowdown in US economic growth, a decline in inflation, and a shift in monetary policy to easing. The disagreement lies in how the United States will achieve the above results, a smooth “soft landing”, with economic growth and inflation falling and stabilizing at the long-term trend level, and a mild shift in monetary policy; or a dramatic “hard landing”, with an economic recession and a rapid drop in prices, forcing the Federal Reserve to make an emergency turn? We believe that the probability of a “soft landing” of the US economy in 2024 is higher. Residential consumption, residential investment, inventory replenishment cycle and policy space will be the four major supporting forces for the US economy in 2024. Under the baseline scenario, the year-on-year growth rate of US GDP may decline moderately to 1.8%, and the core PCE will fall back to 2.5% year-on-year, moving closer to the Fed’s 2% policy target. Considering that the Fed can dispel some recession concerns through a flexible shift in its stance, and that the pace of fiscal spending can be moved forward, the possibility of the US economy falling into recession is low in the absence of exogenous shocks.