Bank of America Global Research discusses the US economic outlook and takes a contrarian view on peak inflation and soft landing expectations.
"Many economists cling to the idea of a soft-landing. Indeed, almost half of the Bloomberg consensus has no negative quarter of GDP growth between now and the end of 2024...We see this as a big head fake. Inflation will not return to the Fed's target unless the Fed is able to get the unemployment rate, job openings and other measures of imbalance back to normal. The resilience of the economy simply means the Fed needs to do more... Moreover, the longer the economy stays strong, the longer it takes to get inflation down and the greater the risk of higher inflation expectations," BofA notes.
"A corollary of our sticky inflation view is that policymakers, economists and investors should not ignore short-run inflation expectations. If general inflation is high enough and persistent enough, workers and firms will start to expect an inflation premium in their wage or price," BofA adds.