US can avoid recession with “breathing” in consumer spending, says UBS

The United States economy can avoid a recession and achieve a “soft landing”in the assessment of analysts at the European bank UBS, indicating a pause in consumption, after a period of intense spending that contributed to keeping inflation high.

“Our main expectation is a soft landing, with economic growth and inflation slowing as consumers take a break from a long period of heavy shopping, and the Federal Reserve begins to cut interest rates. before the end of the year”UBS said in a statement on Monday (April 29, 2024), changing its forecast for the 1st interest cut for September, instead of June.

Recently, concerns about stagflation, which is a combination of economic stagnation and high inflation, were highlighted after data showed that the economic growth slowed down in the 1st quarter – to an annualized rate of 1.6%, well below expectations of 2.5% – at a time when inflation continues to surprise with increases.

However, UBS suggests that slower economic growth could be the solution to persistent inflation, pointing to recent business surveys that show consumers are resisting further price increases more strongly.

UBS notes that recent employment increases have not changed the trend of slowing wage growth, indicating that demand and supply in the labor market are balancing and this will likely make it easier for the Federal Reserve to reduce tariffs. interest rates and avoid the risk of an increase.

“We believe a slower labor market will help the Fed lower rates fees interest rates even with inflation above target, and we consider further rate increases unlikely, even if inflation remains high in the short term”added UBS.

The expected postponement of interest rate cuts has gained momentum in recent weeks, with December now being seen as the start of the interest rate reduction cycle, according to the Fed Rate Monitordo Investing.com.

However, with the Fed’s 2-day meeting starting in just one day, many on Wall Street will be watching to see if Fed Chairman Jerome Powell agrees with the market’s view of a less aggressive path forward for interest rates. .

BofA sees no signs of “stagflation”

Furthermore, analysts at BofA (Bank of America) informed clients that, despite economic concerns in the US, there are no signs of stagflation.

In their view, the most recent data on inflation and concluded that, although the March figures were high, the situation is not as alarming as feared, considering the surprisingly positive data from the last quarter.

Both general inflation and inflation, not counting the most volatile items, remained at 0.32% in March. Bank of America expected an increase of 0.25%, but analysts were already predicting better numbers after the impressive results in the 1st quarter.

The bank also pointed to the continued increase in spending, the drop in personal savings and GDP (Gross Domestic Product) data that showed lower growth than expected.

With information from Investing Brasil.