Surge in Migration Fueling US Economic Growth, Driving Lower Inflation Rates and Impacting Federal Reserve Policy Decisions

The US economy has shown impressive growth in the first quarter of 2024, driven by strong hiring and a decrease in inflationary pressures that boosted consumer spending. This trend is expected to continue due to shifting demographic trends, leading to an increase in the forecast for full-year GDP growth to 1.5% in real terms.

However, despite robust economic activity, inflation has been slow to cool down, and while price pressures are expected to ease as the year progresses, it will likely be a slower process than initially anticipated. This slow inflation cooling will impact Federal Reserve policy decisions, with expectations now pointing towards policy rates remaining unchanged for a few months before eventual cuts later in the year.

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.