Slower Inflation and Strong Economic Growth: How the Federal Reserve’s Decision-Making Process is Being Affected

The Federal Reserve has been able to remain patient in its decision-making process due to the strong economic growth experienced in the US during the first quarter of 2024. Impressive economic activity was fueled by factors such as strong employment and a reduction in inflationary pressures that boosted consumer spending and maintained stable growth.

However, despite this positive outlook, inflation has proven to be slow to cool down. While price pressures are expected to ease as the year progresses, it is unlikely that this cooling will occur at the pace initially anticipated. This slower cooling of inflation will have a significant impact on the Federal Reserve’s policy decisions, with expectations now suggesting that policy rates will remain unchanged for several months before possibly being cut later in the year.

One key factor contributing to recent economic strength is increased net migration flows seen in 2023, which led to a larger labor force. This influx of new workers provides crucial support to the economy and shapes the overall economic outlook for 2024. With a larger labor force available, businesses can expand their operations and invest more heavily in new projects, leading to even stronger economic growth in the future.