US Chart Pack (Aug. 2023)

Growth in the real economy appears to be gathering momentum, but with survey-based indicators still weak and credit conditions continuing to tighten, we expect that rebound to be short-lived. In contrast, labour market conditions continue to ease. Nominal wage growth has moderated a little and, with productivity growth accelerating, the slowdown in unit labour cost growth has been more pronounced. Despite the resurgence in the real economy, underlying price pressures are rapidly fading. We expect core inflation to be close to the 2% target by mid-2024. Under those circumstances, the Fed will have to cut nominal interest rates aggressively next year to prevent real rates from rising to undesirable levels. We anticipate an above-consensus 200bp of loosening in 2024.