US | The task is not complete

The United States has achieved something that seemed impossible a year ago: significantly lower inflation (from over 9% in the summer of 2022 to 3.5%) without triggering a rise in unemployment, currently at 3.8%.

Key points

• Key points:
• While considerable progress has been made inbringing down inflation, the task still needs to be completed. Inflation is still above the 2% target. After easing steadily, the headline rate has remained unchanged for the last three months.
• Moreover, despite the steepest monetary tightening cycle in 40 years, the United States economy shows no signs of weakness. Around a year ago, the discussion was whether the economy was headed for a soft or a crash landing (a recession). Today, it is whether there will be a soft landing or, on the contrary, whether it will not happen at all and the economy will continue flying.
• The most recent estimates from high-frequency indicators suggest that economic growth was high in the first quarter, at around 3% annualized.
• The most likely scenario is that inflation will continue to fall, although this will occur in a non-linear and gradual way. Prices will probably continue to come down as inflation is still above target for one component: imputed housing rents (i.e., the amount for which a family believes it can rent its home), which remain extremely high.
• The Fed appears set to embark on a tapering cycle in the third quarter, which will drive equity markets and reduce the likelihood of a recession. However, sooner or later, monetary tightening will cause the pace of growth to ease: We may see a soft landing.

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