Monetary Indicators Monitor (Jul.)

The annual growth rates of the main monetary aggregates remain unusually elevated, but the growth rate of bank loans has fallen back. Furthermore, although those monetary aggregates are significantly higher than the level 12 months ago, nearly all that expansion occurred in the early stages of the pandemic, with those aggregates showing no growth whatsoever in the past two months.
Paul Ashworth Chief North America Economist
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US Economics Weekly

Fed shifting back to risk management mode

The upward revisions to the “dot plot” at this week’s FOMC meeting were hard to square with Fed officials’ continued belief that higher inflation will prove mostly transitory. Nevertheless, we also now expect two 25bp rate hikes in 2023, one more than we had previously pencilled in.

18 June 2021

US Economics Update

Inflation “transitory”, but Fed now projects rate hikes

The Fed continued to stick to its view that the surge in inflation "largely" reflects "transitory factors", but officials revised their inflation projections up significantly for this year and the median projection now shows two 25bp interest rate hikes in 2023. In his press conference, Chair Jerome Powell argued that the Fed was still “a ways off” from achieving the substantial further progress toward its dual mandate goals that would trigger a tapering of its monthly asset purchases.

16 June 2021

US Chart Book

‘Transitory’ inflation claims look less convincing

The further jump in CPI inflation in May was again driven by a handful of categories most affected by the lifting of pandemic restrictions. But there were also clear signs that inflationary pressures are becoming more widespread, with rent of shelter inflation in the early stages of a cyclical rebound and the jump in food away from home prices a sign that severe labour shortages, and the resulting upward pressure on wages, are starting to feed through. Those trends are much less likely to be transitory, particularly when inflation expectations have continued to trend higher. With the economy still a long way from the Fed’s full employment goal we doubt that officials will be in any rush to bring forward plans for tightening policy. But we suspect the Fed will eventually be forced to admit that higher core inflation will prove more persistent they initially believed.

16 June 2021

More from Paul Ashworth

US Economics Weekly

Surging prices begin to weigh on confidence

Negotiations over a bipartisan compromise on infrastructure spending continued this week, but the Republicans and Democrats are still so far apart in their offers that it is only a matter of time before these talks collapse. The Democrats next best option is to try passing a combined infrastructure and social welfare spending bill via reconciliation when the next fiscal year begins this October. Even if the centrist Democratic Senators are willing to support such a bill, which remains unclear, the spending would be largely paid for via higher taxes on corporates, capital gains and high-income earners. As the impact would be close to revenue neutral, we won’t be rushing to revise our real GDP growth or inflation forecasts.

28 May 2021

US Data Response

Durable Goods (Apr.)

The 1.3% m/m decline in durable goods orders in April partly reflected the impact of semiconductor shortages in the automobile sector, with motor vehicle orders falling by 6.2% m/m last month. Nevertheless, the continued strong growth in core capital goods orders suggests that business equipment investment will register another double-digit annualised gain in the second quarter.

27 May 2021

US Economics Weekly

A whiff of stagflation

The extent of the surge in CPI inflation in April specifically caught us a little off guard, although we had been expecting a pick-up in response to the reopening and the shortages of raw materials, intermediate inputs, and labour too. Headline CPI inflation will now peak at close to 5% in the coming months and average 3.8% this year.

14 May 2021
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