The year 2024 is not likely to be boring economically. We have the impression that everything and its opposite could happen in the coming months. Economic news unfolds in an unpredictable way and this confusion risks contributing to chaotic market developments, as we clearly observed on Tuesday on the North American stock markets.
In the Wednesday morning newsletter of New York Timesfinancial columnist David Leonhardt opens his column with a formula that well sums up the state of confusion that characterizes the current economic context.
“The economy is likely heading into a recession. No, she’s thriving again. Inflation is in free fall. No, it is starting to rise again,” he writes, specifying that all these assertions are plausible and that they describe scenarios that could all come true.
The observer of the American economy then recalls that this paradoxical situation where all contradictions seem possible today is the result of a sequence of events which has its origins in the economic boom that the United States experienced during the Barack Obama’s presidential terms in the wake of the 2008 financial crisis.
An economic boom that continued under Donald Trump, but which ended abruptly in March 2020 with the outbreak of the COVID-19 crisis.
The economic collapse that followed this unprecedented health crisis was short-lived and its effects were limited due to the massive financial intervention of the US federal government which had learned from previous crises, including that of real estate in 2007 which was marked by a sharp increase in unemployment.
Thanks to financial support from the federal government, American households have been able to continue spending despite widespread disruption of supply chains.
But strong household demand combined with supply unable to meet it generated the inflation that we have since experienced and which led to the sharp rise in interest rates that we experienced in 2022-2023.
We are here today, we are still trying to curb inflation and yet we are waiting for a reduction in interest rates that we had hoped for in March in the United States.
A costly disappointment
So much for the genesis of the American economic situation, which obviously greatly affects the Canadian and Quebec economic situation.
Since the surge in inflation has been brought under control and a decline in its growth has been observed each month, a majority of analysts in the United States have taken it for granted that the Federal Reserve would make a first reduction in its rate. key rate at the Monetary Policy Committee meeting in March.
Surprise, we learned on Tuesday that the inflation rate, which was 3.4% in December in the United States, stood at 3.1% in January, while economists had anticipated an increase below the bar. 3% for this month.
The disappointment was strong on the North American stock markets, which all recorded significant declines during Tuesday’s session, notably by 1.4% for the S&P 500 and more than 2% for the S&P/TSX index.
The certainty that interest rates would fall in March has thus transformed into hope that the Federal Reserve will make a first reduction in May, while a minority of more pessimistic analysts expect a movement of withdrawal only next June.
The excessive reaction of investors who caused a decline of 92% of stock market shares during the day on Tuesday suggests the return of certain volatility over the coming months.
According to Financial PostTuesday’s session interrupted a rally that had lasted for more than 15 weeks, during which the S&P 500 index appreciated by a very surprising 22%.
By falling 1.4%, the S&P 500 recorded its biggest fall on Tuesday linked to the publication of the consumer price index since September 2022, when inflation reached record levels.
A sign that Tuesday’s stock market surges were generated by renewed volatility, the main indices largely regained on Wednesday the losses recorded the day before due to excessive disappointment.
But it must be remembered that the American economy grew by 2.5% during 2023 despite the largest and rapid increase in interest rates in recent history.
And that despite the good figures on employment and consumption which continue to be regularly published, many economists are now of the opinion that the American economy will run out of steam in 2024, which will lead the Federal Reserve to accelerate rate cuts from the second half of the year.
But these rate reductions will come too late, according to the National Bank in particular, and the American economy is expected to enter recession in 2025. As we can see, it will not be easy to follow and understand the evolution of the economy at all. throughout the year. We’ll have to take it one month at a time.
reference: www.lapresse.ca