(Bloomberg Opinion) — U.S. inflation is now expected to fall faster than originally projected, thanks to tighter credit conditions in the wake of several bank failures.
Economists lowered their projections for the consumer price index as well as the personal consumption expenditures (PCE) index for each quarter through the first half of 2024, according to the latest monthly Bloomberg survey of economists. . The survey was conducted from April 14 to 19.
With the collapse of several lenders, including Silicon Valley Bank last month, consumers and businesses say it’s much harder to get credit. The effect is similar to that of the increase in interest rates by the Federal Reserve, which would imply less action by the monetary policy authorities to reduce inflation.
Even so, PCE, the Fed’s preferred inflation gauge, is now forecast to close the year at 3.8% a year, nearly double the central bank’s target. Price pressures have eased in recent months, but not as quickly as the authorities would like.
“Banking stress means much tighter credit conditions, which in an environment of rising borrowing costs, weak business confidence and a rapidly weakening housing market, makes a hard landing for the economy look even more likely.” said James Knightley, chief international economist at ING.
“Inflation will slow even more rapidly in this environment, opening the door for interest rate cuts later this year,” he said.
Economists kept the probability of a recession in the next 12 months at 65%, the highest level since mid-2020.
They revised expectations for first-quarter gross domestic product to 1.8% from 1.3% on higher consumer spending. The government will release its first estimate of that figure next week.
Nota Original:US Inflation Seen Coming Down Much Faster Due to Tighter Credit
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.
