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Wells Fargo issues its US economic outlook

Key issues of the US economy are back in the spotlight. The focus is on monetary policy, labor market challenges, and inflation rate. According to Wells Fargo analysts, looser monetary policy will significantly impact US economic growth by boosting activity in various sectors and easing current problems.

In a recent report titled "US Economic Outlook," the bank anticipates that the Federal Reserve will cut interest rates by 0.50% in September, followed by another 0.50% cut in November. This will bring the federal funds rate to a range between 3.25% and 3.50% by mid-2025, which is considered neutral.

The labor market in the United States is expected to face the most significant impact from looser monetary policy. The job creation rate has slowed significantly, and unemployment is rising faster than expected, Wells Fargo notes.

Economists predict that the average monthly job growth in the non-farm sector will be around 116,000 over the next 12 months. This is below the average of 209,000 jobs over the past 12 months. A more lenient monetary policy may stabilize the labor market by encouraging new job creation and preventing further increases in unemployment.

Consumers will also benefit from looser monetary policy, as Wells Fargo expects real personal consumption spending to slacken considerably by the end of 2024 and early 2025, then recover in the second half of next year.

Lower Fed interest rates are likely to reduce borrowing costs, stimulating consumer spending and further boosting the economy. Additionally, lower interest rates will positively affect the housing market. Wells Fargo has revised its forecast for US housing investment upward.

The bank also foresees a decrease in inflation, which causes great concern among Fed officials. Inflation could become moderate, with the core personal consumption expenditures price index projected to rise by 2.6% year-over-year in the fourth quarter of 2024.

Wells Fargo notes a drop in pricing pressures, as businesses find it difficult to raise prices due to weak demand. The bank also highlights a decrease in production costs, including labor. Analysts believe that softer monetary policy is necessary to sustain the economic growth that has been in force since mid-2020.

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