U.S. Economic Outlook, November 2023
The Northern Trust Economics team shares its outlook for U.S. growth, employment, interest rates and inflation.
The pasmy should not be underestimated. Employers, workers and investors have weathered tremendous uncertainty and performed well through the past three years. A moderate slowdown may feel uncomfortable, but will also bring about further disinflation and set the stage for rate cuts next year. The transition from hot to cool can feel jarring, but a cooldown doesn’t always portend a deep freeze.
Influences on the Forecast
- At its November 1 meeting, the Federal Open Market Committee held the Fed Funds Rate steady and made no other changes to monetary policy. Chair Jerome Powell emphasized that deliberations were focused solely on whether more rate hikes are ahead, but markets interpreted the message as saying the hiking cycle is complete. So long as inflation does not reignite, we expect no further rate increases, but no cuts until the second half of 2024.
- Powell also received a bevy of questions about how the FOMC was considering the run-up in longer-term interest rates. The committee welcomed tighter financial conditions to help tame inflation but needed confidence that higher rates would persist. The U.S. 10-year Treasury yield then fell by 40 basis points as markets digested softer data and a less hawkish Fed; the tightening may not be so persistent.
- Gross domestic product grew at a startling annualized rate of 4.9% in the third quarter, with strength across consumer and government spending as well as inventory restocking.
- The current quarter will almost certainly be slower. Labor disruptions and the resumption of student loan payments will slow consumer spending, while the surge of higher interest rates may curtail investment. Inventory accumulation is difficult to forecast but unlikely to provide the same boost again. However, even a fourth quarter of zero growth would make a full year gain of 2.3%, not a bad pace by any means.