Slow Cooling of Inflation Despite Robust Economic Activity and Increased Labor Pool

Inflation has been slow to cool down, despite robust economic activity fueled by strong hiring and decreasing inflationary pressures that increased consumer spending and kept growth steady. This trend is expected to continue thanks to shifting demographic trends, prompting an increase in the forecast for 2024 full-year GDP growth to 1.5% in real terms.

One key factor contributing to the recent economic strength is the larger labor pool brought about by increased net migration flows in 2023. This surge in migration has resulted in a higher number of available workers, with the influx of new labor-force entrants being the highest seen in the last three years. This increase in the labor pool is providing crucial support to the economy and shaping the overall economic outlook.

Despite this, inflation cooling will likely be a slower process than initially forecasted, impacting Federal Reserve policy decisions. Expectations now point towards policy rates remaining unchanged for a few months before eventual cuts later in the year due to this slow cooling of inflation pressures.