Scheduling a quarterly presentation on the eve of a Fed monetary policy meeting is never very comfortable, some would say. On the other hand, what use would economists be if they weren’t able to form convictions strong enough to stand up to central bankers, too? In this case, our view hasn’t really changed after the Fed’s announcements, except that J. Powell’s confidence in his ability to carry out monetary easing on the scale he is planning reinforces our fears of an early resurgence in inflation, which forms the backdrop to our scenario for 2025.
In our back-to-school quarterly exercise, there’s very little digression on the macro-economic situation. There has been little change in the international situation, and our forecasts for growth and inflation have remained virtually unchanged for the past two quarters. There is also little to say about inflation, which is evolving more or less as expected: inflation is indeed falling, but resistance factors are still largely present, as anticipated. We focused on the prospects for interest-rate cuts, with a necessary prelude on the diagnosis of the US economy, around the question: is there a real risk of recession or not? The answer to this question determines the essence of our interest rate forecasts, and the risks that the best-case scenario of falling interest rates could turn into the worst-case scenario, if not in the short term, at least in the longer term, for inflation and financial markets in the developed and emerging world. Indeed, beyond the support that the current interest-rate decline represents for the economic outlook and financial markets, the question of the depth of the cyclical recovery is hard to avoid.
