The US Congressional Budget Office (CBO) stated that the US economy has enough strength to avoid a recession after the Fed’s decision to raise interest rates by 25 basis points yesterday. According to the CBO, in the second half of this year, gross domestic product (GDP) will increase at an annual rate of 0.4 percent and will recover steadily through 2024 and the next year. However, it was stated that high interest rates and the increase in unemployment could put pressure on consumers.
US Household Savings (Source: FRED)Consumer spending is expected to decline somewhat for the remainder of this year, driven by higher borrowing costs and a decline in Americans’ pandemic-era savings, according to CBO’s forecasts. However, consumer spending is projected to recover in 2024 and beyond.
On inflation, the CBO slightly raised its group inflation forecasts. The personal consumption expenditures price index (PCE), the Federal Reserve’s preferred measure of inflation, is expected to rise 3.3 percent in the fourth quarter from the same period a year ago. However, it is stated that the PCE will fall to 2.6 percent in 2024 and may fall further before approaching the Fed’s 2 percent target by the end of 2025.
