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US Economics Update

US Economics Update

Deepening labour shortages point to lasting damage

The August Job Openings and Labor Turnover survey released yesterday added to signs that labour shortages are still getting worse at a time when many of the temporary factors that were supposedly holding back labour supply are easing. We’re getting more concerned that much of the drop in labour force participation will prove permanent, which is in turn a reason to expect the recovery in real activity and employment to disappoint over the coming years, while wage and price growth remain elevated.

13 October 2021

US Economics Update

Debt ceiling deal may only delay the inevitable

The entrenched positions of both sides suggest the deal to suspend the debt ceiling until December may only delay rather than avert a crisis. And in that scenario, we doubt that the Treasury minting a $1trn platinum coin would offer the easy way out.

7 October 2021

US Economics Update

Debt ceiling crisis can still be avoided

We still expect Congress to avoid a partial government shutdown at the start of next month and to raise the debt ceiling before a full-blown crisis develops in late October. But the negotiations over the latter will go down to the wire, which always leaves scope for a miscalculation by one side or the other.

27 September 2021
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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 Economics Update

Rising cyclical pressure will keep inflation elevated

The spread of the Delta variant domestically has triggered a temporary reversal in the reopening inflation in high contact services, but its spread across other parts of the world will intensify supply shortages and drive goods prices higher. At the same time, transportation costs are soaring, energy prices are proving more resilient than we expected and cyclical inflation is still building. The upshot is that, while price inflation will fall next year, we expect it to rebound to well above 2% in 2023.

16 September 2021

US Economics Update

Delta not the main factor weighing on growth

With authorities having shown no appetite to reimpose restrictions on activity and new virus cases now levelling off, the Delta variant is still unlikely to have as big an impact on the economy as previous waves. That said, it adds to a range of other factors weighing on demand, while the renewed disruption to global supply chains could make shortages worse and keep upward pressure on prices.

US Economics Update

Fed’s core measures point to sustained inflation ahead

In his Jackson Hole speech, Fed Chair Jerome Powell highlighted alternative measures of inflation, including the Dallas Fed trimmed-mean PCE and inflation ex-durable goods, which he claimed were consistent with inflation falling back close to the Fed’s 2% target. But looking at the full suite of the Fed’s alternative measures, on balance they suggest a risk that inflation remains elevated in the years ahead. What next for the ECB? We’re hosting a post-mortem after Thursday’s Governing Council meeting at 1100 ET to discuss its decision and our views on the euro-zone’s economic and inflation outlook. Register here.

US Economics Update

Delta contributing to worsening labour shortages

The continued surge in job openings and elevated quits rate in July suggest that labour shortages are still intensifying, which will put further upward pressure on wages. (See Chart 1.) There is little evidence that the return to in-person schooling or the expiry of Federal UI benefits this week will do much to alleviate those shortages. Instead, virus fears appear to be a bigger factor, with the surge in infections over recent months causing more potential workers to remain on the sidelines.

8 September 2021
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