The belief among investors that the Federal Reserve would cut rates aggressively in 2024, even in the absence of a growth or employment shock had become near-universal even before the central bank’s decisively-dovish pivot at the December policy meeting. Inflation is fading quickly. Energy and manufactured goods prices are still coming down, and our estimates suggest that the Fed’s preferred measure—the...

Markets risk turning overoptimistic on underlying trends: Fiscal support is turning negative, consumer spending is running on fumes as savings rates run well below, and pre-pandemic norms diffusion indices are pointing to a renewed rise in unemployment rates. Non-farm employment diffusion indices, share of industries reporting growth (unchanged cut by half) As the lagged effects of monetary...

A series of data releases in December showed growth slowing more aggressively in the early fourth quarter as activity in the manufacturing and services sectors weakened. The decline in year-over-year data appears consistent with a recessionary downturn.  Citi Economic Data Change Indices To some degree, the economy is suffering from lagging effects associated with last year’s energy shock, exposure...

The global inflation shock is fading fast. After soaring for the better part of two years, food- and energy-driven headline price measures are coming down more quickly than expected, and core inflation rates (i.e., excluding food and shelter) have tumbled across all major developed economies. With supply chains now largely repaired, Western consumer demand slowing, and the Chinese government pouring...

The British industrial sector remains mired in contraction, house prices are falling, labour markets are softening, and a broad array of underlying growth indicators are pointing to slowing momentum. With the full impact of higher policy rates yet to hit home, most forecasters currently expect the economy to exhibit stagflation-esque characteristics in 2024 – consensus estimates show inflation...

A range of measures designed to approximate the euro area neutral rate are indicating that policy rates are becoming increasingly restrictive, and credit flows within the bloc’s bank-dominated financial system have collapsed, with October’s data showing the biggest 12-month drop in lending to businesses and households since the euro crisis. 12-month change in loans by euro area monetary financial...

Most of the major industrialized economies are showing signs of slowing. Although wages are beginning to outpace inflation in many countries, real household purchasing power remains weaker across most income strata. Excess savings, accumulated during the pandemic, have largely evaporated, and consumers are increasingly tapping sources of credit to sustain spending. The legacy of this year’s sharp rise...

It is increasingly obvious that price pressures in the UK have simply lagged their international counterparts in this cycle, and are likely to fade at a relatively comparable pace in the early new year. All-items inflation rose just 3.9 percent in the year to November, the slowest pace since September 2021, and core – which has trailed headline inflation in all major developed economies, fell...

Fading inflation pressures should boost real household incomes in the months ahead, helping support a stronger-than-anticipated rebound in consumer demand within key European markets. Industrial production levels might eke out a modest improvement if Chinese stimulus spending begins flowing in earnest and global inventory cycles normalize. And as rate expectations fall, financial conditions in the...

With the balance of inflation risks swiftly tilting to the downside, markets expect central banks to begin normalizing policy settings in the coming months. Federal Reserve Chair Jerome Powell’s comments during a mid-December post-decision press conference were widely read as implying a willingness to follow canonical policy guidelines—like the Taylor Rule—in moving even before evidence of a downturn...