The risk of a hard landing in the U.S.
economy is growing and may even increase in 2024. Statistics show that the Fed
has successfully curbed inflation by raising key rates. After hiking it 11
times, the U.S. Fed has contained its enthusiasm for three consecutive meetings
by keeping the rate hike on pause. On this basis, we can assume that the
regulator’s restraining cycle is over, and it is time to assess the effect on
the economy.

The risk of a hard landing in the U.S.
economy is growing and may even increase in 2024. Statistics show that the Fed
has successfully curbed inflation by raising key rates. After hiking it 11
times, the U.S. Fed has contained its enthusiasm for three consecutive meetings
by pausing the rate hiking. The regulator’s restraining cycle is over, and it
is time to assess the effect on the economy.

Hard landing of the U.S. economy

The Fed interest rate hike usually does
not immediately lead to a slowdown in economic growth. It takes time for the
effect of high rates to be transferred through the mortgage and consumer credit
market into the economy. Historical data show that, on average, 2–3 years pass
from the beginning of a rate hike cycle to the start of a recession in the U.S.
Its economy shows a weakening of consumer spending due to a compounding
increase in borrowing costs with periodic renewed storms in the banking sector.

In turn, in the labour market, we are
seeing a smooth rise in unemployment and a slowdown in wage growth. Whether
this growth will turn into a more severe recession depends on how hard the cuts
in fiscal stimulus, rising mortgage rates (and the cooling of the property
market as a consequence), and soaring fuel prices hit American households. We
may see only a slight cooling of demand—or perhaps a full-blown recession.

‚In this context, continued high rate
policy by the Federal Reserve is disastrous and is unlikely to be used further
because the current level of rates is sufficient to contain inflation,‘ said
Kar Yong Ang, the Octa financial market analyst. ‚This approach will maintain
positive (albeit marginal, creeping) growth in the economy as a whole‘, he
added.

Recent inflation data refreshes the big
picture—the U.S. dollar is weakening

According to the data released by the U.S. Bureau of Labor
and Statistics on 14 November 2023, the U.S. consumer price growth rate (CPI)
in October decreased to 3.2% from 3.7% in September. The reported results were
better than economists‘ forecasts of 3.3%. As core inflation came in below
expectations, this was perceived as a factor that the Fed rate hike in December
has been ruled out. These market expectations caused a sharp drop in the U.S.
Dollar Index (DXY) to a 2-month low.

Before the release of the Labor Ministry
report, traders were estimating an 86% chance that the Fed would keep the
benchmark interest rate unchanged at the December meeting and a 25% chance of a
25bp hike in January 2024. However, after the release of the data, these
expectations have changed dramatically: investors are almost 100% confident
that the Fed has completed the current tightening cycle and may even cut rates
at least four times in 2024.

‚Investors now bet the world’s major
central banks will end their long series of interest rate hikes. Based on
market expectations, no changes should be expected in the current and next
quarter,‘ said Kar Yong Ang, the Octa financial market analyst. ‚Deflation is
likely to force the Fed to lower the benchmark rate in late 2024 to the
2.50%–2.75% range‘, he added.

The slowdown in the U.S. labour market,
lower inflation, and market expectations of a rate cut in 2024 make it possible
to capitalise on the weakening dollar in the short term. The USDJPY currency
pair looks like the most exciting instrument—a solid technical picture confirms
the dollar’s decline here. The price tested the previous year’s high, which is
now a resistance level, ensuring the potential decrease of USDJPY to the range
of 144.00–144.50 by the end of the current year.

Octa is an
international broker that has been providing online trading services worldwide
since 2011. It offers commission-free access to financial markets and various
services already utilised by clients from 180 countries with more than 42
million trading accounts. Free educational webinars, articles, and analytical
tools they provide help clients reach their investment goals.

The company is
involved in a comprehensive network of charitable and humanitarian initiatives,
including the improvement of educational infrastructure and short-notice relief
projects supporting local communities.

Octa has also won
over 60 awards since its foundation, including the ‚Best Educational Broker
2023‘ award from Global Forex Awards and the ‚Best Global Broker Asia 2022‘
award from International Business Magazine.

This article was written by FL Contributors at www.forexlive.com.