Economic growth outlook not quite as rosy now

The drop back in Treasury yields has accelerated over the past few weeks, as persistent supply shortages and the spread of new coronavirus variants have raised doubts about the pace of real economic growth in the second half of this year and beyond. We share those concerns and, in our upcoming US Economic Outlook that will be released early next week, we intend to revise down our forecast for GDP growth this year to a below-consensus 6.0%. Nevertheless, we still expect long-term Treasury yields to rebound a little in the second half of this year. (See here.)
Paul Ashworth Chief North America Economist
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US Economics Update

Fed lines up March rate hike

The Fed’s announcement that it will “soon be appropriate” to raise interest rates and the numerous hints dropped by Chair Jerome Powell in the post-meeting press conference all but guarantee that a March rate hike is coming. Meanwhile, the Fed set out a brief outline of how it will run down its balance sheet, but with any decision still “a couple of meetings” away, that process won’t get underway until mid-year.

26 January 2022

US Chart Book

Omicron impact short-lived

The surge in Omicron infections means more people were self-isolating in early-January than at any time since the beginning of the pandemic, although the impact that will have on employment and output remains uncertain. Furthermore, with cases now falling just as quickly as they rose, any effects will be quickly reversed in February. In contrast to earlier waves, the rise in infections hasn’t prompted as big a pullback in services activity, with fears of catching the virus lower than during previous waves. The far bigger factor this time is staff absenteeism, which we think will cause both payroll employment and manufacturing output to decline in January, although the impact should be mostly reversed by the end of the first quarter.

24 January 2022

US Economics Weekly

Omicron reaches plateau, leaving Fed free to hike

We expect the Fed to deliver some heavy hints at next week’s FOMC that it is planning an interest rate hike in March. With the Omicron wave now past its peak nationally, there is little to hold the Fed back, particularly if next week brings news of a further acceleration in wage growth.

21 January 2022

More from Paul Ashworth

US Economics Weekly

Fed officials split; Biden backs infrastructure deal

Fed Chair Jerome Powell stuck to the script in his congressional appearance earlier this week, arguing it was “very, very, unlikely” that the US would experience a return to the high inflation of the 1970s. Elsewhere, President Joe Biden gave his support to a bipartisan infrastructure deal worth $1trn then promptly threatened to veto it too.

25 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

US Economics Weekly

Democrats’ spending plans hit by reality check

The Senate Parliamentarian delivered some bad news to the Democrats this week – ruling that they could introduce another reconciliation to the current budget, which would allow them to pass more of President Joe Biden’s spending plans measures with a filibuster-proof simple majority. But she also ruled that any new reconciliation would first have to be approved by the Senate Budget Committee and, since that is split evenly 11-11, the Democrats are left in the hopeless position of trying to convince one of those 11 Republicans to switch sides.

4 June 2021
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