50% Off! Beat the market in 2025 with InvestingProCLAIM SALE

'No landing' scenario could stoke fears of economy overheating: UBS

Published 07/10/2024, 12:58
US500
-

Investing.com -- n a note Monday, UBS analysts cautioned that the U.S. economy may continue running hotter than expected, raising concerns about overheating.

The strong September jobs report, with 254,000 payroll gains—well above expectations—and revisions that added 72,000 jobs for the prior two months, suggests the economy is performing better than many anticipated.

"Labor market data defying expectations not only boosted confidence in the soft landing by quelling fears that it's at risk of cracking," said UBS.

The bank notes that economic data, which had been trending negatively since the spring, is now consistently surprising to the upside. Meanwhile, consumer spending has also picked up, signaling further economic strength.

UBS highlighted the possibility of a "no landing" scenario, where the economy avoids a slowdown altogether and continues to grow at an elevated pace.

The bank noted that U.S. nominal GDP grew by 5% in the first half of 2024 and could continue at this level or higher. While this growth might seem "hot" compared to the slower pace of the 2010s, UBS suggested it could become the new norm.

However, UBS warned that sustained high growth could stoke fears of inflation re-accelerating, particularly in 2025. Although there are no current signs of inflation picking up, the potential risks remain.

They add that the strong labor data doesn't appear to have altered the Federal Reserve's plans for two 25 basis point rate cuts by the end of 2024.

UBS believes the Fed will maintain this course, but beyond 2024, the rate path is more uncertain. If the economy continues to grow at 5%, the Fed may be less aggressive in cutting rates further.

The bank concluded that while investors welcomed the hot data, prolonged economic strength could raise concerns of overheating, which could impact rate cut expectations.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2024 - Fusion Media Limited. All Rights Reserved.