U.S. inflation is now expected to come down faster than originally projected thanks to tighter credit conditions in the aftermath of several bank failures.
Economists lowered their projections for the consumer price index as well as the
With several lenders including Silicon Valley Bank collapsing last month, consumers and
Even so, PCE — the Fed's preferred inflation gauge — is now expected to end the year at 3.8% on an annual basis, almost double the central bank's target. Price pressures have been easing in recent months, but not as fast as officials would like.
"Banking stresses mean much tighter lending conditions, which in an environment of rising borrowing costs, soft business sentiment and a rapidly weakening housing market, makes a hard landing for the economy look all the more likely," said James Knightley, chief international economist at ING.
"Inflation will slow even more quickly in this environment, opening the door to interest-rate cuts later this year," he said.
Economists kept the odds of a recession in the next 12 months at 65%, the highest level since the middle of 2020.
They revised expectations for first-quarter gross domestic product up to 1.8% from 1.3% on stronger consumer spending. The government will release its first estimate of that figure next week.