There are few signs of distress in US economic data in early 2024, even if growth seems to be slowing from the rapid rates of last year. 

This reflects the continued boost from strong balance sheets and positive supply shocks, which have helped the economy weather the impact of high interest rates. 

While we expect these tailwinds to fade somewhat through 2024, the moderation in inflation pressure last year means the Fed should be able to ease policy this year, and there has already been a marked loosening in financial conditions. 

The combination of resilient activity, slower inflation and easing financial conditions should see growth slow but not turn negative. Our judgement is that a soft landing is now the most likely outcome for the US economy this year.

 However, the risk of a downturn is still significant and notably larger than normal. 

In fact, it is possible that the economy is more sensitive to high rates this year, as supply tailwinds recede or balance sheet dynamics deteriorate. Similarly, if inflation proves harder to squeeze out, it could limit the scope for policy easing, reigniting the risk of a hard landing. 

Alternatively, the improvement in supply growth could continue, helping maintain the favourable mix of strong growth and moderating inflation. This would imply a more durable increase in US potential growth and the interest rate structure.

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