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.

Paul Ashworth Chief North America Economist
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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

US Fed Watch

Will Fed signal that March rate hike is coming?

With many Fed officials now either explicitly supporting, or at least “open to”, an interest rate hike in March, we would expect to see some acknowledgement of that in the statement issued after the upcoming January FOMC meeting next week or, at the very least, when the minutes are released three weeks later. Overall, we expect four 25bp rate hikes this year and, since core inflation is likely to remain well above the 2% target, an additional four rate hikes next year, which would take the fed funds target range to between 2.00% and 2.25% by end-2023.

19 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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