On 4th March we wrote an opinion piece that US economy’s exceptionalism was beginning to end. Now after seeing 1 month data, we convincingly believe the US economy is not exceptional anymore. We believe Q1CY25 GDP could be 0.3-0.4% from the previous estimated 1%. Combining the front-loaded adverse impact of tariffs, immigration control, DOGE activities, reduced wealth effect of US households & the backended nature of GDP benefits from continuation of current tax cuts, we believe we might see a GDP growth rate of only 1% in CY25 compared to Fed’s March SEP projection of 1.7%. Hence the US exceptionalism via growth premium has vanished. We see more downside risks to even this low growth projection. The fed till now has been playing the waiting game but by Q2CY25, it’s hand will be forced by NFPs below 80k-100k which is considered neutral rate of employment generation, falling consumer spending nos & a rapidly falling US equities. We won’t be surprised the Fed to come to the rescue if S&P falls to 5000-5200 levels by Q2CY25. Hence, we continue 3 rate cuts of 25 bps each in REMCY25. The Fed will then cite the increase in core PCE as one time event & focus on it’s employment & macro stability mandate.
