Fed won't cut rates this year says Mizuho and warns: Don't bet against the US consumer

investing.com:

Mizuho economists have based their 2024 outlook on a dramatically contrarian perspective — the Federal Reserve won’t cut rates this year.

Diverging from the consensus that anticipates several Fed rate cuts in 2024, analysts contend that economic conditions may not align with the central bank's desires. They emphasize the resilience of American consumers, citing their spending habits as a key factor.

Acknowledging the Fed's inclination to cut rates, analysts highlight the third quarter's acceleration in real GDP to 5%, despite concerns of a credit-induced recession, which serves as a testament to the robustness of consumer spending.

“Recently I was asked the question: “Was I fighting the Fed?” This is a fair question, since analysts may be the only ones on the Street who do not have Fed rate cuts as part of their 2024 macro outlook,” analysts said.

“On a more detailed level, however, analysts are not fighting the Fed! It is very clear that this Fed wants to cut rates; however, our analysis suggests the economy/labor market is not apt to give policy makers the opportunity they want to cut rates.”

Contrary to fears of a credit crunch prompted by ongoing yield curve inversions, analysts assert that a fundamental driver for such a scenario is lacking. Healthy balance sheets across households, non-financial corporations, and the banking industry, along with the absence of asset-liability mismatches or asset price bubbles, dispel concerns of an imminent credit squeeze.

Analysts caution against waiting for a supposed second shoe to drop, suggesting that this perspective is unfounded.

“Betting against the American consumer is single biggest mistake domestic forecasters make repeatedly, and not betting against the Fed.”

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