Economic outlook for the United States is mixed – USD is likely to be range-bound in the near term

Over the past five years, the US economy has experienced a period of significant volatility, with a strong expansion followed by a sharp contraction due to the COVID-19 pandemic. The economy has since rebounded, but growth has slowed in recent quarters. Inflation has also been a major concern, reaching a 40-year high in 2022. The Federal Reserve has responded by raising interest rates aggressively, which has helped to cool the economy and bring inflation down. However, inflation remains above the Fed's 2% target, and the outlook for the economy is uncertain.

The latest economic data from the United States is mixed. GDP growth slowed to an annualised rate of 1.6% in the first quarter of 2024, down from 3.4% in the fourth quarter of 2023. Consumer spending, which accounts for about two-thirds of GDP, slowed to a 2.5% annualised rate in the first quarter, down from 3.3% in the fourth quarter. Business investment also slowed, while government spending and net exports were a drag on growth. The labour market remains strong, with the unemployment rate at 3.9% in April 2024. However, job growth has slowed in recent months, and wage growth has moderated. Inflation has also eased somewhat, with the CPI rising 3.4% year-on-year in April 2024, down from 3.5% in March. However, core inflation, which excludes volatile food and energy prices, remains elevated at 3.6%.

The economic outlook for the United States over the next five weeks is uncertain. The Federal Reserve is expected to keep interest rates unchanged at its June meeting, but the path of monetary policy beyond that is unclear. The economy is facing a number of headwinds, including high inflation, rising interest rates, and slowing global growth. However, the labour market remains strong, and consumer spending is still growing. Overall, the economic outlook for the United States is mixed, and the USD is likely to be range-bound in the near term.

Monetary policy

Over the past five years, the Federal Reserve has shifted its monetary policy stance significantly. In response to the COVID-19 pandemic, the Fed cut interest rates to near zero and implemented a large-scale asset purchase program, known as quantitative easing (QE). These measures helped to support the economy during the pandemic, but they also contributed to a surge in inflation. In 2022, the Fed began to tighten monetary policy by raising interest rates and reducing its balance sheet. The Fed has raised interest rates by a total of 525 basis points since March 2022, and it is expected to continue raising rates in the coming months. The Fed has also begun to reduce its balance sheet, which is now shrinking by $40 billion per month.

The Fed's current monetary policy stance is restrictive. The federal funds rate is currently in a target range of 5.25%-5.50%, which is above the neutral rate of interest. The neutral rate of interest is the rate that neither stimulates nor restrains economic growth. The Fed's balance sheet is also shrinking, which is removing liquidity from the financial system. These measures are designed to slow economic growth and bring inflation down.

The Federal Reserve is expected to keep interest rates unchanged at its June meeting. Trading Economics forecasts the Fed Funds Rate to be 5.50% by the end of this quarter. However, the path of monetary policy beyond that is unclear. The Fed will be closely monitoring economic data, including inflation, employment, and growth, to determine the appropriate course of monetary policy.

The outlook for monetary policy is likely to have a mixed impact on the USD. On the one hand, the Fed's restrictive monetary policy stance is supportive of the USD. Higher interest rates tend to attract foreign capital inflows, which can boost the value of the USD. On the other hand, the uncertainty surrounding the path of monetary policy could weigh on the USD. If the Fed is seen as being too slow to raise rates, or if it is seen as being likely to cut rates in the near future, this could weaken the USD.

GDP

Over the past five years, the US economy has experienced a period of strong growth followed by a sharp contraction due to the COVID-19 pandemic. The economy has since rebounded, but growth has slowed in recent quarters. The US GDP Growth Rate was 2.2% in 2019, -2.8% in 2020, 5.9% in 2021, and 2.1% in 2022. In the first quarter of 2024, GDP growth slowed to an annualised rate of 1.6%, down from 3.4% in the fourth quarter of 2023.

The slowdown in GDP growth in the first quarter of 2024 was driven by a number of factors, including a slowdown in consumer spending, business investment, and government spending. Net exports were also a drag on growth. The slowdown in consumer spending was particularly notable, as it accounts for about two-thirds of GDP. Consumer spending was likely impacted by high inflation, rising interest rates, and slowing global growth.

The economic outlook for the United States over the next five weeks is for continued moderate growth. Trading Economics forecasts GDP Growth Rate in the United States to be 1.50 percent by the end of this quarter. The labour market remains strong, and consumer spending is still growing. However, the economy is facing a number of headwinds, including high inflation, rising interest rates, and slowing global growth.

The outlook for GDP growth is likely to have a mixed impact on the USD. On the one hand, continued moderate growth is supportive of the USD. A strong economy tends to attract foreign capital inflows, which can boost the value of the USD. On the other hand, the slowdown in GDP growth in the first quarter of 2024 could weigh on the USD. If the economy is seen as being likely to slow further, this could weaken the USD.

Labour market

The US labour market has been strong in recent years, with low unemployment and strong job growth. The unemployment rate fell from 3.9% in December 2019 to a low of 3.5% in February 2020, before surging to 14.8% in April 2020 due to the COVID-19 pandemic. The unemployment rate has since fallen steadily, reaching 3.9% in April 2024. Job growth has also been strong, with the economy adding an average of 456,000 jobs per month in 2021 and 375,000 jobs per month in 2022. However, job growth has slowed in recent months, with the economy adding 175,000 jobs in April 2024.

The recent slowdown in job growth is likely due to a number of factors, including high inflation, rising interest rates, and slowing global growth. These factors are making businesses more cautious about hiring. However, the labour market remains tight, with the number of job openings still high. This suggests that businesses are still struggling to find workers, which could lead to continued wage growth.

The economic outlook for the US labour market over the next five weeks is for continued moderate job growth. Trading Economics forecasts Non Farm Payrolls in the United States to be 160.00 Thousand by the end of this quarter. The unemployment rate is expected to remain low. However, wage growth is expected to moderate as the labour market cools.

The outlook for the labour market is likely to have a mixed impact on the USD. On the one hand, continued job growth and a low unemployment rate are supportive of the USD. A strong labour market tends to boost consumer spending, which can drive economic growth. On the other hand, moderating wage growth could weigh on the USD. If wage growth slows, this could lead to lower inflation, which could make the Fed less likely to raise interest rates.

Price changes

Over the past five years, the United States has experienced a period of relatively low inflation followed by a surge in inflation in 2022. The Consumer Price Index (CPI) rose by an average of 2.1% per year from 2019 to 2021. However, in 2022, the CPI surged by 8.0%, the highest rate of inflation since 1981. The surge in inflation was driven by a number of factors, including supply chain disruptions, strong consumer demand, and rising energy prices.

Inflation has eased somewhat in recent months, but it remains elevated. The CPI rose 3.4% year-on-year in April 2024, down from 3.5% in March. However, core inflation, which excludes volatile food and energy prices, remains elevated at 3.6%. The persistence of high inflation is a concern for the Federal Reserve, which has raised interest rates aggressively in an effort to bring inflation down.

The economic outlook for price changes in the United States over the next five weeks is for continued moderate inflation. Trading Economics forecasts Inflation Rate in the United States to be 3.10 percent by the end of this quarter. The Fed's restrictive monetary policy stance is expected to help to cool the economy and bring inflation down. However, there are a number of factors that could keep inflation elevated, including supply chain disruptions, strong consumer demand, and rising energy prices.

The outlook for price changes is likely to have a mixed impact on the USD. On the one hand, continued moderate inflation is supportive of the USD. Inflation tends to erode the value of a currency, so a decline in inflation could boost the value of the USD. On the other hand, if inflation remains elevated, this could make the Fed more likely to raise interest rates, which could weigh on the USD.

Trade

The US trade balance has been in deficit for many years. The trade deficit widened from $623 billion in 2019 to $948 billion in 2022. The widening trade deficit was driven by a number of factors, including strong consumer demand for imported goods, a strong US dollar, and supply chain disruptions.

The trade deficit narrowed to $69.4 billion in March 2024, down from $69.5 billion in February. The narrowing of the trade deficit was driven by a decrease in imports, which fell by 1.6% from the previous month. Exports also fell, but by a smaller amount (2.0%).

The economic outlook for the US trade balance over the next five weeks is for a continued moderate deficit. Trading Economics forecasts Balance of Trade in the United States to be -67.00 USD Billion by the end of this quarter. The US dollar is expected to remain strong, which will make US exports more expensive and imports less expensive. However, slowing global growth could weigh on US exports.

The outlook for the trade balance is likely to have a mixed impact on the USD. On the one hand, a narrowing trade deficit is supportive of the USD. A smaller trade deficit means that the US is importing less and exporting more, which can boost the value of the USD. On the other hand, if the trade deficit widens, this could weigh on the USD.

Government

Government spending in the United States has increased significantly in recent years, driven by the COVID-19 pandemic and other factors. The federal government budget deficit reached a record $3.1 trillion in fiscal year 2020, and it remained elevated at $2.8 trillion in fiscal year 2021. The deficit narrowed to $1.4 trillion in fiscal year 2022, but it is expected to remain elevated in the coming years.

The increase in government spending has been a major driver of economic growth in recent years. However, it has also contributed to the rise in inflation. The Federal Reserve is now tightening monetary policy in an effort to bring inflation down, which could lead to slower economic growth.

The economic outlook for government spending in the United States over the next five weeks is for continued moderate growth. The federal government is expected to continue to spend money on infrastructure, defence, and other programs. However, the pace of spending growth is expected to slow as the economy cools.

The outlook for government spending is likely to have a mixed impact on the USD. On the one hand, continued government spending is supportive of the USD. Government spending tends to boost economic growth, which can attract foreign capital inflows and boost the value of the USD. On the other hand, if government spending growth slows, this could weigh on the USD.

Business

Business activity in the United States has been strong in recent years, but it has shown signs of slowing in recent months. The ISM Manufacturing PMI, a key measure of manufacturing activity, fell to 49.2 in April 2024, down from 50.3 in March. A reading below 50 indicates that the manufacturing sector is contracting. The NFIB Small Business Optimism Index also fell in April, to 89.7 from 88.5 in March. The index is now at its lowest level since March 2021.

The slowdown in business activity is likely due to a number of factors, including high inflation, rising interest rates, and slowing global growth. These factors are making businesses more cautious about investing and hiring. However, there are some signs that business activity could pick up in the coming months. The Conference Board's Consumer Confidence Index rose in April, to 108.6 from 104.0 in March. This suggests that consumers are feeling more optimistic about the economy, which could lead to increased spending.

The economic outlook for business activity in the United States over the next five weeks is for continued moderate growth. Trading Economics forecasts Business Confidence in the United States to be 51.00 points by the end of this quarter. The Fed's restrictive monetary policy stance is expected to help to cool the economy and bring inflation down. However, there are a number of factors that could weigh on business activity, including high inflation, rising interest rates, and slowing global growth.

The outlook for business activity is likely to have a mixed impact on the USD. On the one hand, continued moderate growth is supportive of the USD. A strong economy tends to attract foreign capital inflows, which can boost the value of the USD. On the other hand, if business activity slows further, this could weigh on the USD.

Consumer

Consumer spending in the United States has been strong in recent years, but it has shown signs of slowing in recent months. Retail sales were flat in April 2024, after rising by a revised 0.6% in March. Consumer confidence has also declined in recent months. The University of Michigan Consumer Sentiment Index fell to 67.4 in May 2024, down from 77.2 in April.

The slowdown in consumer spending is likely due to a number of factors, including high inflation, rising interest rates, and slowing global growth. These factors are making consumers more cautious about spending. However, there are some signs that consumer spending could pick up in the coming months. The labour market remains strong, and wages are rising. This could give consumers more confidence to spend.

The economic outlook for consumer spending in the United States over the next five weeks is for continued moderate growth. Trading Economics forecasts Retail Sales MoM in the United States to be 0.30 percent by the end of this quarter. The Fed's restrictive monetary policy stance is expected to help to cool the economy and bring inflation down. However, there are a number of factors that could weigh on consumer spending, including high inflation, rising interest rates, and slowing global growth.

The outlook for consumer spending is likely to have a mixed impact on the USD. On the one hand, continued moderate growth is supportive of the USD. A strong economy tends to attract foreign capital inflows, which can boost the value of the USD. On the other hand, if consumer spending slows further, this could weigh on the USD.

Housing

The US housing market has been strong in recent years, but it has cooled in recent months due to rising mortgage rates. The median existing-home price rose by 4.8% year-on-year in March 2024, down from 10.0% in March 2023. Housing starts fell by 3.0% in April 2024, to an annualised rate of 1.36 million units. Building permits, a leading indicator of future housing construction, also fell in April, by 3.0% to an annualised rate of 1.44 million units.

The slowdown in the housing market is likely to continue in the coming months as mortgage rates remain elevated. The Federal Reserve is expected to continue raising interest rates in the coming months, which will put further upward pressure on mortgage rates. However, the labour market remains strong, and wages are rising. This could support demand for housing, even as mortgage rates rise.

The economic outlook for the US housing market over the next five weeks is for continued cooling. Trading Economics forecasts Housing Starts in the United States to be 1500.00 Thousand units by the end of this quarter. Mortgage rates are expected to remain elevated, which will weigh on demand for housing. However, the labour market remains strong, and wages are rising. This could support demand for housing, even as mortgage rates rise.

The outlook for the housing market is likely to have a mixed impact on the USD. On the one hand, a cooling housing market could weigh on the USD. A slowdown in the housing market could lead to slower economic growth, which could make the USD less attractive to foreign investors. On the other hand, if the housing market stabilises, this could support the USD.

Conclusion

The economic outlook for the United States over the next five weeks is mixed. The economy is facing a number of headwinds, including high inflation, rising interest rates, and slowing global growth. However, the labour market remains strong, and consumer spending is still growing. The Federal Reserve is expected to keep interest rates unchanged at its June meeting, but the path of monetary policy beyond that is unclear.

The mixed economic outlook is likely to create indifference in the USD over the next five weeks. The USD could strengthen if the economy proves to be more resilient than expected, or if the Fed is seen as being more hawkish than expected. However, the USD could weaken if the economy slows further, or if the Fed is seen as being more dovish than expected. Overall, the USD is likely to be range-bound in the near term.

It is important to note that this is just a brief overview of the economic outlook for the United States, and further analysis is necessary to form a comprehensive view of the potential impact on the USD.