US economy will run a lot slower in the second half of the year, economist says

consumer sentiment taking a hit as inflation fears remain now this month's prelim reading showing that sentiment actually fell to the lowest level that we've seen in 6 months here to break it all down what exactly this is telling us maybe about growing weakness within the broader economy if at all we want to bring in Jeffrey roach he is LPL financials a chief Economist Jeffrey it's great to have you here so talk to me just about that sentiment reading I think spooked some investors maybe to some extent here just the fact that it did fall to the lowest level that we have seen in 6 months but is there anything any takeaways that you're seeing just in terms of what that could ultimately signal about the health and the strength of the economy well good morning thanks for having me and and yes I think it was interesting for investors because we got a little bit of confirmation from the conference board's release told us something about consumers pivoting away from Big Ticket items we got that confirmation in the latest survey from the University of Michigan and I think this what this tells us really is that the Slowdown is starting to happen uh but I don't know if we will understand quite the magnitude quite just yet as consumers do pivot away from from those big ticket items I think another thing that was a key driver for last week for markets was uh the latest uh estimate and and blog post from the San Francisco fed talking about excess savings being drawn down so I think I think it's fair to expect the second half of this year is going to be running a lot slower than what we saw throughout 2023 and Jeffrey when it comes to the inflation r that we will be getting later this week specifically the CPI report we are expecting to see maybe some easing when it comes to the uh pricing pressures that we have seen but how long is it going to be until we see that material Improvement that the FED is looking for in order to be confident maybe ultimately to cut rates well I think the fed's looking for confirmation that the economy is slowing so aggregate demand slows which means consumers just aren't splurging as much hence we'll see that pullback in pricing uh it's been a tough time and I think it's been a little bit of a disappointment because as we've all had to come to this realization that the 2% Target that the FED is looking for is going to take a lot more time to to reach that Target we're not going to get to it as quickly as we originally thought yeah I think you know we'll end this year uh around you know at 2.8% again it's above the 2% Target but we're going in the right direction and I think that's where uh markets might respond quite favorably uh in terms of Wednesday so you're you're exactly right this week all eyes will be on uh another print from the CPI it's not the fed's preferred metric the pce deflator comes from the personal income spending report that's that's their favorite uh metric but either way this will be closely watched I think one of the things you look for here is a look past the headline it's going to be uh supported by you know the rise in gas prices look at vehicle insurance and look at rent I think we're going to start seeing finally uh the industry data flow through the official government stats and see uh rent prices start to ease a bit Jeffrey will we see enough Improvement in order to keep those rate cut hopes alive before the end of the year well probably not so we've we had three consecutive disappointing reads January was was quite hot February March so even if this comes in a little better than expected I think policy makers will say okay look we got to we got to make up for for all the disappointments the first three months of the year uh but I do think one thing that we can say with a little more certainty is we can take the the rate hikes off the table remember just a couple weeks ago there was a little bit of uh uh you know kind of clamoring and and uh talking chattering about rate hikes I think that's not going to happen uh but we need to have a little more confirmation that we can get those two cuts my view is uh we will get at least two cuts perhaps not starting until September uh but we'll start seeing uh the easing in of inflation uh in this report we have to see some more confirmation in subsequent reports Jeffrey I'm curious before we let you go I was talking to Mark xandy over at Moody about this last week and he was making the case that 2% doesn't make sense maybe anymore that that should be the fed's target maybe it should be something even higher even floated the potential here of 3% I'm curious where do you stand in that debate and maybe how much whether or not there should be more of an emphasis just on the fact that maybe 2% isn't The New Normal well it's fair to say and I I'll Echo what uh what some of my other colleagues say you know there's nothing magical about 2% but what is special is that Global Central Bankers have agreed to that number so if if if we have to start talking about inflation running a little bit hotter particularly as demographics change the structure of the labor force changes perhaps it's not 2% anymore but that conversation has to be a global one it can't be just in the confines of this country all right Jeffrey Ro we'll leave it there thanks so much for hopping on and joining me here this morning LPL financials a chief Economist appreciate it thank you

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Length: 5min 19sec (319 seconds)

Published: Mon May 13 2024