Sunday, June 18, 2023

State Street Chief Economist: "We Will See Considerable Easing by the Fed in 2024"

 From Neue Zürcher Zeitung's, June 6:

Deutsche Version

For months, financial markets have been vacillating between worries about inflation and recession. Central banks are tightening policy, while inflation is retreating agonizingly slowly. Investors’ hopes that the Fed would soon decide on a pivot have been dashed several times.

In an in-depth interview with The Market NZZ, Simona Mocuta, chief economist at Boston-based asset management giant State Street Global Advisors, shares her views of the global economy, her assessments of the longer-term trajectory of inflation and monetary policy – and what it all means for financial markets.

«The global economy is living through this transition from abundant liquidity to a world where liquidity is being withdrawn»: Simona Mocuta.

Let’s start with the big picture. When you look at the world economy today, what do you see?
I see a combination of slowing growth and disinflation. Boiled down to one sentence, that’s the most important thing. The big question of course is whether we’ll have a recession in the United States or not. We have stayed out of the recession camp for a long time, but the recent banking turmoil is a meaningful event. The economy was already on a trajectory towards slower growth, and now we have this credit tightening element on top of it. This, to me, tips the scale towards a recession. But we’re not talking about an immediate thing, it’s more 2024 that I’m concerned about. We’ll probably have very subtrend growth, with a lot of vulnerabilities of things getting worse.

Do you expect a hard recession?
No, that’s not my baseline scenario. There are three things that can cushion the blow. The first is disinflation. Cyclically, that is the big story. I know that perhaps I’m a bit more constructive on the disinflation story than others, but the disinflation trend I expect helps put a bottom under the slowdown in the sense that sooner or later it will allow central banks to calibrate interest rates lower. We do have considerable easing in our forecast through the end of 2024: we expect 200 basis points of easing, that’s a lot more than the Fed has in their forecast.

What are the other factors?....