Moody’s cuts U.S. GDP forecast

With the U.S. Federal Reserve Board’s inflation-fighting efforts crimping economic growth too, Moody’s Investors Service is cutting its forecasts for the U.S. economy.

The rating agency lowered its call for U.S. real GDP growth to 2.1% this year, from its previous forecast of 2.8%. It also slashed its forecast for next year to 1.3% from 2.3% — citing the effects of tighter monetary and fiscal policy.

“Bringing down stubbornly high inflation will necessitate tighter monetary and financial conditions, in turn weakening economic growth,” said Madhavi Bokil, senior vice president at Moody’s, in a release.

“Our baseline forecasts assume that the ongoing tightening of financial conditions, including rising interest rates, falling equity prices and the stronger U.S. dollar, combined with the ongoing inflationary shock, will temper additional consumer spending after the summer months,” the report said.

“Amid these conditions, we expect interest-sensitive consumer, residential and business investment activity to moderate over the coming quarters and well into next year,” it added.

As the economy slows, Moody’s expects inflation to eventually trend down too.

“[Inflation] will still remain elevated, dropping from 9.1% in June to 7.0% by the end of 2022 and to 2.3% by the end of 2023,” it said.

At the same time, it also sees unemployment rising in 2023 due to slower hiring and more people participating in the labour force.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.