Powell signals turning point in policy

Fed Chair Jerome Powell’s congressional testimony this week was markedly more hawkish. We wouldn’t characterise it as a full-blown Volcker moment. But there could be parallels with former Chair Alan Greenspan’s notorious February 1994 Humphrey-Hawkins testimony.

Paul Ashworth Chief North America Economist
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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

US Economic Outlook

Inflation to remain elevated as GDP growth slows

We expect underlying inflation to remain well above the 2% target this year, which means the Fed will push ahead with four rate hikes even though real GDP growth is likely to disappoint. Core inflation will average 4.3% in 2022 and close to 3.0% in 2023. GDP growth will slow to 2.7% this year and 2.0% in 2023.

20 January 2022

More from Paul Ashworth

US Economics Update

First thoughts on Omicron impact

With cases of the new Omicron variant being reported on several continents now, there is a good chance that it is already present in the United States. We still know almost nothing definitive about whether Omicron is more transmissible or deadly than other coronavirus variants, but it adds to the downside risks, which were already on the rise with the winter surge in infections in the Northeast and the Midwest. Under those circumstances, we think it is unlikely that the Fed will accelerate the pace of its QE taper at this month’s FOMC meeting, which could have paved the way for interest rate hikes earlier next year. There is some debate about whether Omicron will add to inflationary pressure if it affects supply more than demand, but the collapse in energy prices suggest that, initially at least, the impact will be strongly disinflationary.

28 November 2021

Canada Economics Weekly

Canada avoids winter wave, but new variant a threat

Winter is coming but, unlike Europe and the US Midwest too, Canada hasn’t seen a new wave of coronavirus infections. The emergence of a new potentially more-virulent coronavirus strain in South Africa could pose a new threat, however, particularly if the mutations make it more vaccine-resistant than the Delta strain.

26 November 2021

US Economics Weekly

Powell gets the nod; GDP growth rebounding

The announcement on Monday morning that President Biden would nominate Jerome Powell for a second term as Fed Chair was largely as expected, although the unexplained delays in making it official may have persuaded some in the markets that Biden was leaning toward picking Lael Brainard instead. As far as monetary policy goes, Powell and Brainard hold very similar, largely dovish, views. Elsewhere, as a result of the flurry of economic data releases ahead of the Thanksgiving Holiday we have raised our fourth-quarter GDP growth forecast to 6.5% annualised, from 4.0%.

24 November 2021
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