The September CPI inflation data in the United States was higher than expected. Tiffany Wilding, Managing Director and North American economist at PIMCO, believes that although the US economy remains resilient, both economic growth momentum and inflation will decline together. Even though the bank had doubts about whether the Federal Reserve will raise interest rates, based on the latest strong inflation data, it tends to estimate that the Federal Reserve will continue to tighten monetary policy.
Tiffany Wilding said that the current market has roughly reflected the positive factors for the strong US economy, and it is expected that the US will not enter a recession. This is mainly due to the US government's stimulus fiscal policy during the pandemic, which extended consumers' spending power in an environment of interest rate hikes. This has led to an incredible boom in the US consumer market, but inflation has eroded households' disposable income, and with savings decreasing, consumer spending is expected to slow down, The US economy will gradually slow down.
Tiffany Wilding stated that in the past, under the environment of high inflation and aggressive interest rate hikes, the US economy did not experience a soft landing. Based on historical experience, the impact of interest rate hikes on the economy usually fully manifests after 6 to 8 quarters, and the economy will end in a recession. However, based on the current strong labor market, there is still a chance for a soft landing, but the possibility of a recession is not ruled out.
Tiffany Wilding believes that when the Federal Reserve will cut interest rates depends on the pace of labor market normalization, which will affect the direction of the Federal Reserve's monetary policy.