Strong start to 2024 pushes Fed easing farther into the year

Current Trends

Rather than cooling off, the labor market heated up over the past several months, with unemployment still at a low level, wages climbing rapidly, and job growth posting a 12-month high. The only sign of weakness was the nearly one-hour reduction in the average workweek. Despite the supportive labor indicators, consumer spending had a post-holiday hangover in January, perhaps finally pinched by low household savings and rising credit card debt. But inflation was also hotter in January, a setback after cooler readings over the second half of 2023. The hot start to 2024 for hiring and prices could push back the start of the Fed’s first rate cut and reduce total easing this year.

Future Outlook

Despite solid economic momentum at the start of the year, signs of underlying weakness are bubbling under the surface. Wages are still buoyant, but elevated interest rates and growing consumer debt are clear downside risks for spending in coming months. Profits for businesses are being squeezed by rising costs and tighter bank credit, factors which typically drive a sharp weakening of hiring — adding to concerns about consumer activity. Monetary policy should also remain restrictive with a delayed shift to policy easing by the Fed, keeping the forecast focused on a mild recession.