2025-2026年美国经济展望报告

UniversityofMichigan,AnnArborDepartmentofEconomics

GabrielM.Ehrlich,Director

GeorgeA.Fulton&SaulH.HymansDirectorsEmeriti

611TappanAvenueAnnArbor,MI48109-1120 /econ/rsqe734-764-2567

"TheMichiganModel"

ForRelease:11/21/2024

TheU.S.EconomicOutlookfor2025一2026

JacobT.Burton,GabrielM.Ehrlich,KyleW.Henson,DaniilManaenkov,NiaoniaoYou,andYinuoZhang

UniversityofMichigan

ExecutiveSummary

AllThingsConsidered

AstheFedproceedswithitscuttingcycleamidacoolinglabormarket,weexpectrealGDPtogrowatanannualizedpaceof2.3percentandtheunemploymentratetoaverage4.2percentin2024Q4.Weprojectamodestdecelerationofeconomicgrowthtoaccompanythelessdynamiclabormarketoverthenearterm.However,thesolidmomentumofrealfinalsalestoprivatedomesticpurchasers,helpedbygrowthinrealincome,islikelytopersist,supportingsolidrealGDPgrowth.Asthestimulativeeffectsoftheexpectedtaxcutsdominatethedragfromtheanticipatednewtariffs,weprojectquarterlyGDPgrowthtoacceleratemodestlyduring2026,reachinga2.5percentannualizedpaceby2026Q4.

ConsumptionMomentum:RevisedandReinforced

Therecentlargeupwardrevisionofpersonalincomedatasince2022explainstheresilienceofconsumptiongrowthinthefaceofhigherinterestrates.Higherincomeandmeaningfulrealwagegainsgoingforwardwilllikelysupportrobustspendinggrowthinthenearterm.

NoHalloweenHauntfortheLaborMarket

Thelabormarketislookinglessworrisomeaftersomejumpscaresinthethirdquarter.Theunemploymentratedippedto4.1percentinSeptemberandheldthereinOctober,downfromtherecenthighof4.3percentinJuly.However,thetrendpaceofjobgainsislikelystilldeceleratingevenafteraccountingforthenegativeimpactsofrecenthurricanesandstrikes.Jobopeningshavecontinuedtosoften.Weexpectprivatesectorjobgainstodeceleratemoderatelythroughmostof2025,whilegovernmentsectoremploymentalsogrowsataslowerpace.

PreludetotheSuperBowlofTax

Manypreviouslylow-probabilityfiscalscenariossurfacedfollowingtheRepublicansItrifectavictoryintheNovemberelections.WeexpectanextensionofmostexpiringprovisionsoftheTaxCutsandJobsActof2017,alowercorporatetaxrateof15percentfordomesticmanufacturers,andahighercaponthestateandlocaltaxdeduction.WealsoanticipatesizablebutincompletetaxcutsonSocialSecuritybenefits,tips,andovertimeincome.Consumerincentivesforpurchasesofelectricvehicles,ontheotherhand,arelikelytobeunpluggedquickly.

TariffsonChinaareverylikelytosurge.WeprojectaveragetariffratesonChinesegoodstogroweventuallytotriplethesizeofthoseimplementedduringthefirstTrumpAdministration.WeexpectPresident-electTrumpIsfiscalagendatocomeintoeffectin2026.Withroughly200billiondollarsintaxcutsagainst85billiondollarsinnewtariffrevenue,thefederaldeficitclimbsfrom6.1percentofGDPinfiscal2024to6.8percentofGDPbyfiscal2026.Thatlevelwouldbeunprecedentedoutsideofwars,therecentpandemic,andsevererecessions.

InflationTrends:VeryDemure,VeryMindful

Progressonbringinginflationtrendsdownhasstumbledrecently.The3-monthannualizedcoreCPIinflationratecamedownfrom4.5percentinMarchto1.6percentinJuly,butithasre-acceleratedto3.6percentinOctober.AlthoughthedecelerationininflationtrendshasclearedthewayfortheFedtostarteasing,therecentuptickreducestheurgencytocutratesquicklyintheforecast.WecontinuetobelievethatinflationremainsonapathofgradualdecelerationtowardtheFedIstarget,largelybecauseshelterinflationhasplentyofroomtodeceleratefurther.

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TheFedStandsWatch

Thelong-awaitedFedpivottoratecutshasarrived.Aftersittingina23-yearhighrangeof5.25–5.5percentfor14months,thefedfundsratewasreducedby50basispointsinSeptemberandby25basispointsinNovember,bringingittothe4.5–4.75percentrange.Thepaceofcutstofollowislikelytobedatadependent.Providedthatlabormarketconditionsremainstable,weprojectanother25-basispointcutattheFOMC'sDecembermeetingbeforethepaceofcutsslowsnextyear.Weanticipatefourmorecutsof25basispointsin2025,bringingthefedfundsratetoitsterminalrangeof3.25–3.5percentforthiscyclebytheendoftheyear.

Inourview,thetemporaryuptickofinflationrelatedtotariffswillnotprompttheFedtotightenpolicyin2026.Webelievethatriskmanagementconcernsrelatedtothepotentialnegativegrowtheffectsoftariffs,whichplayedaroleinthe2019ratecuts,willbalancetheupsiderisksfromnewtaxcuts,promptingtheFedtostandpat.

The2025–2026Outlook

WeprojectthatrealGDPgrowthwillslowfromaQ4-toQ4paceof2.4percentin2024to1.9percentin2025.Long-terminterestrateshaveincreasedmeaningfullyinrecentmonths,whichwilllimitpotentialconsumptiongrowthintheneartermbymakingfinancingforbig-ticketpurchaseslessaffordable.Weexpectloosermonetarypolicytoworkthroughtheeconomysufficientlytoliftquarterlygrowthtoa2.1percentpaceinthesecondhalfof2025.Aspersonalincometaxcutskickin,thequarterlypaceofgrowthrampsupduring2026,reachinganannualizedrateof2.5percentin2026Q4.CalendaryearrealGDPgrowthpicksupto2.2percentin2026.

Theunemploymentrateticksupfrom4.2percentin2024Q4to4.3percentin2025Q1andthenstabilizesat4.4percentfortheremainderof2025beforedecliningbackto4.2percentby2026Q4.Monthlypayrolljobgainscontinuetoslow,averaging108,000jobsfrom2025Q2–Q4.Asloosermonetarypolicyworksitswaythroughthesystem,jobgainsrampupslowlyduring

2026.Theeconomyadds1.3millionjobsin2026.

WeexpectPCEinflationtocontinueitsdeclinetowardtheFed's2.0percenttarget,assheltercostgrowthdecelerates.Year-over-yearPCEinflationsettlesaround2.1percentin2025.Weexpectthepriceeffectofthenewimporttariffstobemodest,with12-monthPCEinflationtickingupto2.3percentbytheendof

2026.ThereaccelerationisabitlargerforcorePCEinflation.

Withplentyofsupplyalreadyforsale,newsingle-familyhomeconstructionremainssoft,averagingapaceof991,000unitsfrom2024Q4to2025Q2beforeclimbingtoa1,080,000unitpaceby2026Q4.Theannualpaceofmulti-familystartsbottomsat350,000in2024Q4beforerecoveringto449,000unitsby2026Q4asfinancingcostsdrop.

Weexpectautoloanratestostepdownaslong-termratesdeclineandautodelinquenciesdrop.AstheCPIfornewlightvehiclescontinuestodecrease,wethinkvehicleaffordabilitywillimprovenoticeablyasmeasuredbymonthlypaymentsandtransactionpricesrelativetoincome.Weprojectthattheannualizedpaceofsaleswilledgeupto16.1millionin2025.Weexpecttheanticipatedearlyphase-outoftheelectricvehiclecreditstohaveminimalimpactontotallightvehiclesales,asconsumersarelikelytoshifttowardvehicleswithotherdrivetraintypes.Asaresult,vehiclesalestotal16.2millionin2026.

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TheCurrentStateoftheEconomy

TheU.S.economycontinuestoexpandatasolidclip.RealGDPexpandedatanannualizedpaceof2.8percentinthethirdquarterof2024,atouchbelowthe3.0percentpaceinthepriorquarter.Chart

1showsthegrowthrateofrealGDPandthegrowthcontributionsofitsmajorcomponentsoverrecent quarters.Thegovernmentsector's contributionreboundedto0.9percentage pointsinthethirdquarteronthestrengthof defense-relatedexpenditures.Consumption expenditures'contributiontoheadlinegrowth roseto2.5percentagepoints,benefitingfrom jumpsinpurchasesofpharmaceutical productsandelection-relatedservices.However,thecontributionofprivatefixedinvestmentslippedtoonly0.2percentagepoints.Thesumofthelattertwocomponents—togetherknownasthecontributionofrealfinalsalestoprivatedomesticpurchasers—registeredover2.0percentage

pointsfortheseventhquarterinarow.

Therecentannualrevisionstothe

NationalProductandIncomeAccounts

(NIPAs)resultedinconsiderablyhigher

estimatesofGrossDomesticIncomegrowth

overthe2019–23period,largelystemming

fromhigherestimatesofpersonalincome.

Chart2showsthecurrentandpre-revisionpersonalsavingrates.Withreviseddatashowingafairlysteadyreadingofaround5percentdisposablepersonalincome,therecentpaceofconsumptionexpendituregrowthappearsmoresustainablethanpreviouslythought.

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AsofearlySeptember,thelabor marketsituationwaslookingworrisome.The unemploymentratejumpedby0.4percentage pointsbetweenAprilandJulyto4.3percent, thenbarelyedgeddownto4.2percentin August.Payrolljobgainsasreportedon September6averagedonly116,000per monthfromJunetoAugust.Itwasnowonder theFederalReservedecidedtocuttherangeforthefedfundsrateby50basispoints(bps)inmid-September.Subsequentdatahavebeenfarlessalarming.Theunemploymentratedipped

furtherto4.1percentinSeptemberand

October.Septemberpayrolljobgainscamein

initiallyat254,000alongwitha72,000

combinedupwardrevisiontotheJuly–August

jobgains.TheOctoberpayrolljobgainswere

only12,000,butthejobgrowthcountwas

reducedbyabout38,000strikingInternational

AssociationofMachinistsunionworkersandwasfurtherloweredtemporarilybythedisruptionsthatHurricaneMiltonandHelenecausedinpartsofFloridaandNorthCarolina.

WeareexpectingasignificantreboundinemploymentgrowthinNovember.Still,evenfactoringintherecentdip,boththeheadlineunemploymentrateandthebroadermeasureoflabormarketslackknownastheU6unemploymentrateappeartobefollowingaslowupwardtrend.1Wealsothinkthatpayrolljobgainsarelikelytocontinueslowinggradually.Basedonthepreliminarydata,theannualbenchmarkrevisionofpayrollemploymentislikelytolowerpayrollgainsfromApril2023toMarch2024

1InadditiontothetraditionalmeasureofunemploymentknownastheU3rate,theU6unemploymentrateincludespeopleworkingpart-timeforeconomicreasonsandthoseoutsideofthelaborforcewhoarewillingandabletoworkandhavelookedforworkatsomepointovertheprior12months.

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by818,000,makingtheslowdownduringthisyearlookfarlessdramatic.ThecontinuedpaceoflabormarketsofteningiswellillustratedbyChart5.TheprivatesectorjobopeningsrateintheBureauofLaborStatistics'(BLS's)JobOpeningsandLaborTurnoverSurvey(JOLTS)hasbeentrendingdownsinceearly2022and,asofthemostrecentdataforSeptember,hasfallenbackto

thelevelobservedattheendofJanuary2020.WhilethenumberofjobopeningsintheIdataremainsabout10percentaboveitslevelonFebruary1,2020,thereadingsinOctoberandearlyNovembersuggestjobopeningscontinuetosoften.The3-monthaverageofprivatesectorweeklyhourshasalsodeclinedfromapeakof35.0in

May2021toarounditspre-pandemiclevelof

34.3inOctober.AsshownonChart6,however,aggregateprivatesectorweeklyhourshavebeenholdingupreasonablywell,expandingatapaceofabove1.0percentyear-over-yearformostof2024.ThemeasuresofcompensationshowninChart7arecontinuingtomoderatebutremainhighenoughtosustainrealcompensationgrowth.

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Overall,labormarketstrengthremainsreasonable,withtotalpayrollgrowthconduciveofcontinuedconsumptiongrowthinthenearterm.

Progressonbringingtrendinflationdown,veryevidentbetweenlatespringandmid-summer,hassputteredrecently.Theyear-over-yearcoreCPIinflationratehasremainedaround3.3percentsinceJune.The3-monthannualizedcoreinflationcamedownfrom4.5percentinMarchto1.6percentinJuly,buthasre-acceleratedtoa3.6percentreadingasofOctober.PersonalConsumptionExpenditures(PCE)priceindexinflation(onlyavailable

throughSeptemberasofthewritingofthisreport)hasexhibitedaqualitativelysimilardynamic.Theannualized3-monthinflationrateofthehighly-

watched"supercore"metric—thePCEprice

indexforcoreservicesexcludinghousing—

improvedfrom5.3percentinMarchto2.3

percentinJulybutreboundedto2.9percentin

September.PCEHousinginflation,however,

continuestotrenddown,albeitslowly.Average

PCEsheltercostshadrisenmorethan5.0

percentyearoveryearinSeptember,despitemeasuresofnewtenantrentinflationthathavelongsincemoderated.Overall,wecontinuetobelievethatinflationremainsonapathofgradualdecelerationtowardtheFed'starget,largelybecauseshelterinflationhasplentyofroomtodeceleratefurther.

TheFedcutthetargetrangeforthefedfundsrateby50bpsinmid-Septemberandafurther25bpsinearlyNovember.Yetlong-termTreasuryinterestrateshaveexplodedhighersincemid-September,returningtolevelsseeninJuly.The10-yearnoteyieldroseby60–70bpsthroughearlyNovember.Abouttwo-thirdsoftherun-upcanbeattributedtotheincreaseinthe10-yearTreasuryInflation-Protected

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Security(TIPS)yield,withtherestduetohigherinflationcompensation.Whileitistemptingtoattribute therun-uptoshiftsinelectionoutcome probabilitiesandtheincreasinglymorecostly campaignpromisesinthelead-uptothe Novemberelections,thelackofasharpbond marketreactionuponlearningtheactual electionoutcomesuggeststhatotherforces arelikelytohavebeenatplayaswell.One possibleexplanationisthecoolingandreheatingpatternwehaveseeninthelabormarketandinflationdata,coupledwiththerecentNIPArevisiontopersonalincome.Yetanotherexplanationisashort-termoverreactiontonoisyinformation.Wejudgethattherehasbeensomeoverreaction,butnear-termratedynamicswilllargelydependonhowmarketsassesstheimpactofPresident-electTrump'ssecond-termagenda.

TobrieflysummarizeourassumptionsaboutthefirsttwoyearsofthesecondTrumpAdministration:weexpectmoderatelywiderfiscaldeficitsduetolowertaxrevenuesthatstimulatetheeconomy,whilehighertariffsundosomeofthestimulus.Thisrelativelybenignoutlookmeansthatwedonotanticipatelargeshiftsinlong-runneutral

policyrate.Asaresult,wecontinuetoprojectlong-termTreasuryyieldstomoderate.

Chart11showstherecentdynamicsof

consumersentimentintheeconomy.Whilethe

ConferenceBoardmetrichasgenerallymoved

sideways,theUniversityofMichigan

ConsumerSentimentindextookalargedivein

2022amidhighinflation.Sincethen,theindexhasbeenonanupwardtrajectorywithafewsetbacks.Bothindicesremainfarbelowpre-pandemiclevels.Itremainsunclearwhetherandhowtheapparentdisconnectbetweenthelevelsofconfidenceandgrowthofconsumerspendingwillberesolved.

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Chart12showstheInstituteforSupplyManagement's(ISM's)PurchasingManagerdiffusionIndicesformanufacturingandservices.Theservicesindexjumpedto56.0inOctober,proppedupbythenewordersandemploymentsub-indices,suggestingstrongservicesectormomentumtostartthefourthquarter.Themanufacturingsectorcontinuestostruggle,withtheISMindexindicating

contractioninallbutoneofthepast24months.Wearehopefulthatthismanufacturingdownturnwillendsoon.MostmanufacturingoutlooksurveysconductedbyregionalFederalReservebanksshowamarkedimprovementin6-monthaheadexpectations.

Stagnantlightvehiclesalesareonereasonbehindtheweaknessinmanufacturing.

Theseasonallyadjustedannualizedpaceoflightvehiclesalestopped16millionunitsforthesecond

timethisyearinOctober,buttheaverageforthisyearsofarstandsatadisappointing15.6million.Pooraffordabilityduetohighvehiclefinanceinterestratesislikelyholdingbackvehiclesales.Chart14showslighttruckandcartransactionpricesrelativetoaveragemonthlywagesontheleftaxis.Boththemaizeandbluelinesareatorbelowtheir2019levels.Thegreenandreddashedlines(displayedontherightaxis)showhypotheticalmonthly

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paymentsasashareofthemonthlyaveragewageforanewcarortruckpurchasedattherespectiveaveragetransactionpriceandfinancedover48monthsatthenewvehiclefinanceinterestratereportedbytheWallStreetJournal.Bothmetricsshowthataffordabilityhasdeterioratednoticeablysince2021,tolevelsmoreinlinewith2014–15levelsforcarsand2012fortrucks,respectively.Thegoodnewsisthatvehicleloandelinquencyratesmaypeaksoon,whichcouldbringaboutlowerriskspreadsforvehiclefinanceandimprovingaffordability.

With30-yearfixedmortgageratespushinguptowardthe7.0percentmarkagain,thehousingmarketislikelytogetanotherswingoftheseesaw.Chart15showstheNationalAssociationofHomeBuilders'(NAHB's)HousingMarketIndexalongsidetheMortgageBankersAssociation's(MBA's)volume indexofloanapplicationsforpurchases.The NAHB'sindex,whichmeasuresbuilders' sentimentonconcurrentandsix-month forwardsingle-familysalesaswellasthe trafficofprospectivebuyers,hasbarelybegun toimprovethisfallafteritssummerslump. Withmortgageratesshootingupagain,wedo notexpectmuchoptimismfromhomebuilders.Thenumberofnewmortgageapplicationsalsoappeardestinedtoscrapealongthebottomoftheirhistoricalvolumesoverthenearterm.

Overall,thestateoftheeconomyremainschallengingtointerpret.Webelievethatthedynamicsofthelabormarketsupportcontinuedsolidconsumptionexpendituregrowthinthecurrentquarter.Highinterestratesandpost-electionpolicyuncertaintycouldweighonsomesectors.Althoughweforecastthelabormarkettocontinuegraduallycoolingoffthroughthefirsthalfofnextyear,webelievethattheFed'spivottoloosernear-termmonetarypolicywillfilterthroughtheeconomyovertime,helpingtosustaintheongoingbusinessexpansionoverthenexttwoyears.

Next,wedetailseveralkeypolicyandeconomicassumptionsunderlyingtheforecast.

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KeyPolicyImplicationsoftheFederalElections

DonaldTrumphaswonthepresidencyoncemore,andtheRepublicanPartyhaswoncontrolofbothhousesofCongressfor2025–26.TheHousemajoritywillremainverynarrow,butpartydisciplinecouldbecomeeasiertoenforcewithaRepublicanPresidentandSenate.Still,theslimseatmarginwilllikelylimitthesizeandscopeofpoliciesCongresscanimplement,withmostlegislativeactionlikelycenteredontaxpolicy.WenowexpectanextensionofmostexpiringprovisionsoftheTaxCutsandJobsActof2017(TCJA),reinstatementof100-percentbonusdepreciation,andareductionofthecorporateincometaxratefordomesticmanufacturingto15percent.Wethinkthatafullexemptionoftips,overtimepay,andSocialSecuritybenefitpaymentfromincometaxationisunlikely,butapartialexemptionislikely.Wealsoexpectthecaponthestateandlocaltax(SALT)deductionstoberelaxed,fulfillingacampaigncommitment.AlargeportionofInflationReductionAct(IRA)fundsdevotedtorenewableenergyhasgonetoRepublicandistricts,sowedonotexpectawholesaleearlyphase-outof"greenenergy"provisions.However,thehighlyvisibleconsumerincentivesforpurchasesofelectricvehicles(EVs)arelikelytogetzapped.

ItalsoseemsverylikelythattariffsonimportsfromChinawillrisesharply.WeprojectaveragetariffratesonChineseimportstogrowtoeventuallybetriplethesizeofthoseimplementedduringthefirstTrumpAdministration.Weprojectthenewtariffstocomeintoeffectearlyin2026andrampupoverthefollowingyearasroundsofmutualretaliationfollow.Weexpectabouta0.2percentpermanentincreaseinconsumerpricesduetothenewChinatariffs.Ontheotherhand,andcontrarytomanyobservers,wedonotprojectthelastingimpositionofbroadtariffsonimportsfromtherestoftheworldoverthenexttwoyears.Weinsteadexpectthethreatofsuchtariffs(orashort-livedimposition)tobeusedasabargainingchipinnegotiationswithourtradepartners.

Thepathoffuturepopulationgrowthishighlyuncertain,butitisveryrelevantforouroutlook.WethinkpooreconomicconditionsinseveralCentralAmericancountrieswillcontinuetobethekeydrivingforcebehindtheflowofmigrantsacrosstheU.S.southernborder.TighterbordercontrolsandenforcementunderthesecondTrumpAdministrationwilldetersomeandslowthepaceofnewarrivals.Wehaveloweredourprojectionsforpopulationgrowthconsiderablycomparedtoourrecentoutlooks,

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whichreliedonCongressionalBudgetOfficeprojectionsreleasedinJanuary2024.2Thecampaignpromiseofmassdeportationsofunauthorizedimmigrantsisamajorwildcard.Theremovalofasignificantportionoftheworking-agepopulationcouldpushinterestratesandinflationhigher,whilealsoslowingtheeconomy.Alarge-scaledeportationprogramhasnotbeenattemptedsincetheEisenhowerAdministrationin1953.Whileitislikelythatadeportationprogramwillbeputinplace,weareskepticalthatitwillultimatelyresultinthepermanentremovalasignificantportionofunauthorizedimmigrants.

MonetaryPolicy

TheFederalOpenMarketCommittee(FOMC)remainscommittedtoitsdualmandateofbringinginflationdowntoits2.0percentobjectivewhilemaintainingfullemployment.TheFOMChascutthefederalfundsrateateachofthelasttwomeetings,by50basispointsinSeptemberandby25bpsinNovember,bringingittothe4.5–4.75percentrange.Committeemembershavenotedthattheyare"stronglycommittedtosupportingmaximumemployment"andthat"labormarketconditionshavegenerallyeased"intheirrecentstatements,signalingthattheyareopentofurtherratecutsifthelabormarketshowsfurthersignsofweakening.Ontheotherhand,FederalReserveChairJeromePowellstatedonNovember14,"Theeconomyisnotsendinganysignalsthatweneedtobeinahurrytolowerrates.Thestrengthwearecurrentlyseeingintheeconomygivesustheabilitytoapproachourdecisionscarefully."Weprojectanother25bpscutintheCommittee'sDecembermeetingbeforethepaceofcutsmoderatesnextyearabsentarapiddeteriorationoflabormarketconditions.

ThemedianeconomicprojectionforthefederalfundsrateamongSeptemberFOMCmeetingparticipantsenvisionedoneadditionalcutin2024fromthecurrentrangeandfourmorein2025.TheCommitteemaintaineditsbeliefthatinflationwouldcontinuetonormalizetowardtheFed's2.0percenttarget.Themedianprojectionforesawtheunemploymentraterisingto4.4percentin2024Q4andstayingtherein2025Q4.Theactualunemploymentrateenteredthefourthquarterat4.1percentinOctober,likelyallowingtheFedtomovegraduallytowardamoreneutralmonetarypolicy.

2CongressionalBudgetOffice'sreport,"TheDemographicOutlook:2024to2054",Jan18,2024:

/publication/59697

.

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CorePCEinflation,akeymetricfor forecastingfutureinflation,stoodat2.7 percentyearoveryearinSeptember.This metrichasbeenslowingconsistentlysincethe September2022readingof5.6percent,but progresshasslowedin2024.The3-month average(annualized)ratespikedto4.4 percentinMarchanddeclinedto1.9percent asofJuly,butithassincereboundedto2.3percentinSeptember.AnotherhotCoreCPIprintinOctoberlikelymeansanotherincomingabove-trendPCECoreinflationprint.ThedeclineininflationinthemiddleofthisyearclearedthewayfortheFedtobegincuttingrates,buttherecentreaccelerationaddscredencetoaslowerpathdown.Corenon-housingservices,alsoknownasthe"supercore"(roughlyhalfofprivateconsumption),wasoneofthefinalsectorstoexperiencedisinflation.AsshownonChart16,itwasasignificantdriveroftherecentspike,thesubsequentdecline,andtherecentfirming-up.Itsyear-over-yearlevelremainsstubbornlyhighaswell.

TheFed'sstatutorydualmandaterequiresabalancedapproachtopromotingmaximumemploymentalongsidepricestability.Thelabormarketisstillnearfullemployment,butitisshowingdefinitesignsoffurthercooling.Thetoplinepayrolljobgainsreadingof12,000inOctobercameinbelowexpectations,addingtofearsthatthelabormarketslowdownhasaccelerated.Whilethemonthlyreadingwaslikelyimpactedbyinclementweatherandstrikes,theaverageoverthethreemonthsbeforeOctoberwas148,000,ameaningfulstepdownfromthe2024Q1monthlyaverageof267,000(or196,000afteradjustingforthepreliminaryestimateofthebenchmarkrevision).Thecontinuedslowdowninthelabormarketalongsideclose-to-targetinflationgivestheFedroomtomoverateslower.

TheFedhasbeenreducingthesizeofitsbalancesheetsinceMay2022.Atthattime,theFedannounceda95billiondollar-per-monthredemptioncapforitssecuritiesholdings,andithasbeenshrinkingitsbalancesheetbyaround80billiondollarspermonthsincethen.OnMay1ofthisyear,theFedannouncedthatitwouldslowthepaceofdeclinebyestablishinganewredemptioncapof60billion

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dollarspermonthbeginningonJune1,asmallsteptowardsamoreaccommodativepolicy.Weexpectthepaceofbalancesheetreductiontoslowto30billiondollarspermonthbytheendof2025.

WebelievethatourforecastisconsistentwithaFedthatispreparingtoenteramorepatientphase