Expect 1 interest rate cut or May not be that too in 2024

 

The US election and the one who will be winning the same will face one of the hardship of interest rates management. The current scenario of U.S economy does not hint any interest rate cut down. Yes please don’t expect any rate cut and even if you then restrict it to 1 cut only in CY 2024.More than two years after the Federal Reserve started raising interest rates to alleviate a pandemic-era price spike, the core consumer price index remains well above the central bank’s target. It’s a bit puzzling, then, that former  President Donald Trump’s economic agenda seems to be dedicated to raising prices. Even Goldman Sachs analysts said they now do not expect the Fed to roll out a rate cut until September.

But here we get you some of the key data points to reflect and accentuate the pain points building within U.S Economy and the divergence of macro data’s. Since August 2021, the US economy has witnessed the depletion of $2.1 trillion in excess savings. Following the influx of $4 trillion in stimulus funds from March 2020 to August 2021, households accumulated $2.1 trillion in excess savings. 

However, since then, these savings have been rapidly depleted at a rate of approximately $70 billion per month, reaching a deficit of -$72 billion by March 2024. Simultaneously, US credit card debt has surged by $330 billion, reaching a record high of $1.1 trillion. Meanwhile, the savings rate in the US has declined from 3.5% in February to 3.2% in March, marking the lowest level since November 2022.

 A recent survey conducted by LendingTree revealed that 78% of US consumers now perceive fast food as a luxury item due to its escalating prices. Despite this perception, 75% of Americans still indulge in fast food at least once a week, although 62% state that the rising costs deter them from doing so more frequently. Notably, half of the respondents regard fast food as a luxury, particularly those facing financial hardships, notably households earning less than $30,000 annually. The cost of a typical family fast food meal has surged to $60-$70, prompting questions about the reasons behind the price hikes.

Meanwhile, concerns are mounting over the state of credit card debt, with serious delinquencies (90+ days) reaching 7%, the highest level since 2011. US credit card debt currently stands at a staggering $1.1 trillion, with $78 billion teetering on the brink of default.

Recent projections from the Congressional Budget Office (CBO) underscore the precarious fiscal trajectory of the United States. According to one scenario, the US Debt-to-GDP ratio is forecasted to surpass 250% by 2054 if government spending and revenues follow their 30-year historical averages. Alternatively, even a slight increase in the average interest rate on the national debt or a minor slowdown in productivity growth could result in a Debt-to-GDP ratio exceeding 200% by mid-century. These projections, however, assume no economic recessions during the forecast period.

 The surge in fast food prices has outpaced wage growth, with a 41% increase since 2017 compared to a 36% rise in average hourly earnings for non-managerial positions. Over the past decade, prices at fast food giant McDonald's have doubled, exacerbating concerns about affordability, especially in the wake of the pandemic.

 Federal Reserve data underscores the financial vulnerability of many Americans, with over half unable to cover a $2,000 emergency expense using savings, and a significant portion struggling to meet even smaller unexpected bills. Consumer weakness is further highlighted by the fact that almost one-fifth of respondents could only afford expenses below $100, while nearly a quarter reported difficulty paying all their bills in full.

 

Despite these challenges, global asset managers remain optimistic about the near-term economic outlook, with the majority discounting the likelihood of a recession within the next 12 months. However, mounting inflationary pressures and lingering economic uncertainties suggest that risks are on the rise.

 The US national debt continues to soar, reaching a new high of $34.6 trillion in April, a $1.6 trillion increase since September 2023. With total debt ballooning by 47% or $11 trillion in just four years, concerns about its sustainability persist, particularly given the potential for interest expenses to reach $1.6 trillion annually if the Federal Reserve maintains current interest rates.    

 Additionally, annual spending on home improvements and repairs is expected to decline for the first time since 2009, reflecting the impact of rising costs and elevated interest rates on household budgets. Despite this, the median US home sale price reached a new record in April, further highlighting the challenges faced by consumers in managing housing-related expenses. 

According to the Federal Reserve, 1 in 6 Americans residing in the poorest 10% of ZIP codes are currently experiencing credit card debt delinquency. This figure has surged from 11% in the second quarter of 2021 to 17% in the first quarter of 2024, marking the highest level in 21 years. In a span of just one decade, this percentage has more than doubled. Concurrently, the proportion of individuals nationwide with delinquent credit card debt stands at approximately 12%, the highest since 2003. For the majority of Americans, delinquency rates on credit card debt now exceed those observed during the 2008 Financial Crisis.

A Harris poll conducted for the Guardian reveals that 56% of Americans currently  perceive the country to be in a recession. Presently, 55% of Americans believe the economy is contracting, and 49% think that the S&P 500 has declined for the year. However, GDP data consistently indicates positive growth for seven consecutive quarters, and the S&P 500 has surged by 12% this year to reach a new all-time high. Despite these positive indicators, the poll suggests that 49% of Americans believe unemployment is at its highest level in 50 years, even though the unemployment rate has remained below 4%, nearing a 50-year low. 

According to the poll, 58% of Americans attribute the state of the economy to the president. This raises questions about the significant disparity between perception and factual data.

Conclusion:

Indian markets will be dependent on inhouse news and growth strategies and one will witness huge divergence in Global market news impact on the Indian markets. The market is fast enough to absorb and discount outlooks. Hence hold cash, invest for long-term matching India's economic growth.  More war will bring more investments at home since India will develop more policies to reduce import and hence the market will play accordingly.