📝U.S. Beveridge Curve Is Back to Pre-Pandemic Levels: RBC

There are still reasons to expect a much weaker economic backdrop to emerge in the U.S. Excess savings built up over the pandemic have now largely been depleted. The household savings rate is running around 3.5%—well below pre-pandemic levels—and the unemployment rate in August jumped 0.3%. A sharp pull-back in job demand has been largely painless so far. Job openings were exceptionally high relative to unemployment a year ago, so declines over 2023 have happened without a persistent rise in the jobless rate. But the Beveridge curve (measuring the ratio between the job opening rate and the unemployment rate) has now corrected to levels more consistent with pre-pandemic levels. That means any further reduction in labour demand is most likely to lead to higher unemployment from now on. The Fed won’t hesitate to push interest rates higher should inflation pressures re-surface. But we think there are enough early signs of softening to render additional interest rate hikes unnecessary. The Fed Funds range is expected to stay at currently restrictive levels, until the second quarter of 2024 when the persistently low inflation allows for a pivot.

- RBC