US

US Economics Weekly

Debt ceiling could still delay QE taper

This week the focus was on the Fed, which appears intent on announcing a QE taper at the next FOMC meeting in early November. Next week the focus will shift to fiscal policy, with the Democrat’s plans to boost infrastructure and social welfare spending balanced on a knife edge. A debt ceiling crisis in late-October could even delay the Fed’s taper plans.

24 September 2021

US Economics Update

Taper to begin in November

Fed officials gave a heavy hint today that the QE taper will be formally announced in November and, presumably in response to concerns that the surge in inflation won't be as transitory as they originally hoped, there were notable increases in the median interest rate projections.

22 September 2021

US Chart Book

Data provide mixed signals on Delta impact

The latest data provide mixed signals on the impact that the Delta variant is having on the economy. The high frequency indicators for high contact services suggest that activity levelled out in August and weakened a little in early September. Last month’s retail sales report also revealed that spending on food services was broadly flat, but control group sales nevertheless rebounded strongly, as households refocused their spending online and in favour of goods consumption. Elsewhere, leisure and hospitality employment was unchanged in August which, because that sector had been such an important contributor to the strength of the gains in earlier months, helps to explain why payroll employment increased by little more than 200,000 last month. Finally, even though activity only stagnated, the prices for some high contact service activity like hotels and air fares fell quite sharply. The good news is that, with Delta variant infections having now peaked, we should see some rebound in affected activity and employment soon, although the downside is that could contribute to a renewed pick-up in inflation linked to reopening.

21 September 2021

Key Forecasts

Main Economic & Market Forecasts

%q/q ann. (%y/y) unless stated

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Q3 2022

2021

2022

2023

GDP

+6.6

+4.0

+3.1

+3.2

+3.2

+3.2

(+5.8)

(+3.5)

(+2.5)

CPI Inflation

(+4.8)

(+5.1)

(+4.9)

(+4.2)

(+2.4)

(+1.2)

(+4.2)

(+2.3)

(+1.9)

Core CPI Inflation

(+3.7)

(+4.2)

(+4.4)

(+4.6)

(+3.2)

(+2.4)

(+3.4)

(+3.1)

(+2.6)

Unemp. Rate (%), Period Ave.

5.9

5.3

4.9

4.6

4.5

4.3

5.6

4.4

3.8

Fed Funds Rate, End Period (%)

0.00-0.25

0.00-0.25

0.00-0.25

0.00-0.25

0.00-0.25

0.00-0.25

0.00-0.25

0.00-0.25

0.50-0.75

10y Treas. Yld., End Period (%)

1.45

1.60

1.75

1.90

2.00

2.10

1.75

2.25

2.50

S&P 500, End Period

4298

4400

4400

4450

4500

4550

4400

4600

4700

$/€, End Period

1.19

1.17

1.15

1.15

1.15

1.15

1.15

1.15

1.20

¥/$, End Period

111

112

115

115

115

115

115

115

115

Sources: Refinitiv, Capital Economics


Debt ceiling could still delay QE taper

US Economics Weekly

26 September 2021

Our view

Fading fiscal support, ongoing supply constraints, and the Delta-driven surge in infections mean the risks to our below-consensus forecast that GDP growth will slow to 3.5% annualised in the second half of 2021 lie to the downside. We doubt that additional fiscal stimulus will amount to much and expect growth to be a below-consensus 3.5% next year too. Lasting supply constraints and labour shortages will keep inflation well above target next year, but we think the Fed will proceed cautiously with tapering its asset purchases and will not raise interest rates until 2023.

Latest Outlook

US Economic Outlook

A whiff of stagflation

Supply shortages will ease only gradually over the next couple of years, putting sustained upward pressure on core inflation and constraining real activity. We expect core inflation to remain above 3% for the remainder of this year, with only a modest drop back next year. We anticipate that real GDP growth will be a below-consensus 6.0% in 2021 and 3.5% in 2022. (Pages 3 & 4.)

13 July 2021