As the Federal Reserve takes into account March's jobs figures in their inflation path for 2024, how confident are Americans in the strength of the US economy?

BofA Securities Head of US Economics Michael Gapen joins Market Domination to discuss the state of US consumer sentiment around inflation as the Fed carefully navigates its monetary policy in a major election year.

On why certain aspects of the labor market such as wage growth haven't found their way to all corners of the US economy, Gapen says:

"I think maybe why it hasn't percolated through to consumers, there's a number of reasons. But I think one is simply the difference between the price level in the rate of inflation. When people like me talk about it, 'Oh, inflation is slowing,' that doesn't mean the price level is falling. It just means it's rising at a slower rate. So, I think households are still adjusting to what has been a big level shift upward in the price level over the past few years."

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Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

- Michael, I'm also interested to get to just your general grade on the overall economy now, right, Michael, and why don't you think Americans feel better about that economy?

MICHAEL GAPEN: Yeah. Our overall view, I think, is pretty constructive and optimistic. We agree with the supply side narrative that the Fed has embraced most recently, that what we're really seeing is a rebound in the labor force. It's increasing the capacity of the economy to grow without generating overheating effects, and that's really benefiting everybody. So it ends up, what starts out with a rebound in the labor force, ends up with a story about stronger employment, stronger income growth, and greater spending.

I think maybe why it hasn't percolated through to consumers, there's a number of reasons. But I think one is simply the difference between the price level, and the rate of inflation. What people like me talk about is, oh, inflation is slowing. That doesn't mean the price level is falling, it just means it's rising at a slower rate.

So I think households are still adjusting to what has been a big level shift upward in the price level over the past few years. So the data says we should be feeling good about things on a macro level, but I certainly understand why it's difficult at the household level to digest the higher prices we've seen.

- Michael, maybe one of the other things affecting sentiment this year in particular is that there's a presidential election coming up. And I'm curious, not just how you're thinking about how it's affecting consumer sentiment, but also, if you are saying there's a possibility the Fed could start to cut later than forecast, we start getting close to the election. And so I know the Fed says they're not political, but you have to wonder if that starts to factor into their decision making.