US: Soft landing still in sight – Danske Bank

Economic growth is slowing mostly in line with our expectations, but we think recession risks remain low. We make only marginal adjustments to our forecast profile and see 2024 GDP growth at 2.5% (from 2.3%) and 2025 at 1.5% (unchanged), Danske Bank macro analysts note.

Fed to reach a terminal policy rate of 3.00-3.25%

“Potential output continues to grow at a brisk pace, supported by increases in labour supply, solid productivity growth and fiscal policy driven demand for manufacturing investments.”

“Risks to the outlook remain somewhat skewed to the downside. The current low savings rate indicates that consumers' buffers remain weak. Slow monetary policy pass-through and high share of fixed rate mortgages suggest that rate cuts will not provide a rapid boost to economic growth, if the outlook deteriorates faster than we expect.”

“Inflation forecasts have been adjusted modestly lower. We see headline inflation averaging 2.9% in 2024 (from 3.2%) and 2.2% in 2025 (from 2.5%) and core inflation at 3.3% in 2024 (from 3.4%) and 2.4% in 2025 (from 2.6%). We now expect the Fed to cut interest rates by 25bp at every meeting from September until June 2025 (prev. only every other meeting from September), followed by two final cuts in H2 2025 (terminal rate 3.00-3.25%; prev. 3.75-4.00%).”