Recession and interest rates are the two crucial issues that investors have in mind. In the US, the Federal Reserve (Fed) rate hike is expected to be coming to an end and inflation will continue on the downward path, although not uniformly. In this context, an Invesco report established three possible economic scenarios for the remainder of the year.
The first of them contemplates a hard slowdown of the economy: “There would be a strong impact on growth, with recession first in the US and possible spillover effects in Europe. Inflation continues to fall.
The second scenario is that of a irregular slowdown in which growth is below trend and slows down in the short term, but the recovery would occur at the end of the second half of this year.
“The Fed would shortly interrupt the tightening of its monetary policy and could cut rates at the end of the year”, while the eurozone would follow the same pattern, but with a delay, and the ECB would continue raising rates.
Finally, the third scenario goes through a smooth deceleration. “The tightening affects growth less than expected and inflation follows a pattern similar to our main hypothesis. Inflation falls in the euro area, but more slowly than in the US. The cycle continues, albeit at a growth rate below the trend”.
another report of investors Prepared by Markets Live Pulse also detailed that a majority of investors expect a recession in the US before the end of 2024. A minority of 20% of those surveyed even see a collapse in 2023, at a time when the staff of the company itself The Federal Reserve completely abandoned its forecast of recession.
Inflation: what is the market outlook
Looking at the US inflation figures, before the latest data is published next Thursday, Invesco details in its report that the disinflationary process is underway. Thus, demand is already slowing down in many of the major economies, credit conditions are tightening and, especially in the US, inflation is already on a downward trend.
In his opinion, official interest rates are peaking in developed markets, led by the US. After a rapid tightening cycle, they believe the Fed is close to terminal rate, with inflation ending the year above the 2% target, possibly closer to 3%.
Further, they predict some marginal cuts in rates, possibly starting at the end of this year, although probably in 2024. “However, rates are expected to remain high“, they add.
In regards to economic growth, point out that while the momentum of inflation is slowing, so is growth. They expect some weakness in the second half of this year, “as policies lead to an irregular slowdown, which may or may not lead to a mild recession in the second half of 2023.”
Source: Ambito
