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The acceleration in broad money growth to a six-year high in December should put to rest any lingering concerns about the impact of the Fed’s balance sheet run-down on the economy. … Monetary Indicators Monitor …
5th February 2019
Even if the Fed has stopped hiking interest rates sooner than we originally envisaged, we doubt that will prevent a marked economic slowdown this year. After all, that dovishness was partly prompted by the more severe than expected downturn in global …
The Fed’s latest Senior Loan Officer Survey suggests the slowdown in business equipment investment and rate-sensitive consumer spending growth will worsen in the coming months. Loan demand has continued to decline and now banks are tightening lending …
4th February 2019
In a remarkable U-turn, the Fed appears to have abandoned plans to continue gradually raising interest rates it set out only six weeks ago. The markets unsurprisingly welcomed this dovish shift, but we don’t think it will prevent economic growth slowing …
1st February 2019
The rebound in the ISM manufacturing index in January provides further reassurance that economic growth has remained solid at the beginning of 2019. We still expect a combination of weaker global demand and the stronger dollar to weigh on the …
The 304,000 surge in non-farm payrolls in January was partly offset by a downward revision to the December gain, but still illustrates that economic growth remains solid and that the government shutdown had little impact. The Fed made it pretty clear this …
The dovish tone of the policy statement and press conference following today’s FOMC decision will reinforce expectations that the Fed is almost done raising interest rates. We think a sharp economic slowdown over the course of this year means the Fed will …
30th January 2019
With the “patient” Fed set to leave interest rates unchanged, attention has shifted to its plans for balance sheet normalisation. But focusing on the terminal size of the balance sheet misses an important point. Its composition matters too, and if the Fed …
29th January 2019
The increase in participation of those aged 25-54 is partly due to a structural decline in disability rates, but the more recent drop in fertility rates also appears to be playing a key role. That will help boost labour force growth over the next few …
28th January 2019
At next week’s policy meeting, the Fed is likely to reiterate its current mantra that it can be “patient” in waiting to hike interest rates. Admittedly, stock markets have recovered most of the losses from December and credit spreads have narrowed again, …
25th January 2019
We expect a solid 190,000 gain in non-farm payrolls in January which, because a bill has already been passed guaranteeing workers back pay when the government reopens, will be largely unaffected by the shutdown. … Payrolls will be unaffected by …
24th January 2019
The Fed will leave rates unchanged next week and may well include references to being “patient” in the policy statement and post-meeting press conference, to signal more clearly that a March rate hike is off the table. With equity markets rebounding from …
23rd January 2019
The Federal government shutdown has made it harder than usual to judge how the economy is performing, but the data that have been released have been fairly upbeat. The surge in payroll employment and manufacturing output in December shows that the economy …
22nd January 2019
There are good reasons to believe the next recession will be modest, which means that, even though the nominal interest rate would probably hit the near-zero lower bound again, the Fed should have the tools to counter that downturn by employing some of …
The Fed’s promise to be “patient” is why we now forecast just one additional rate hike in the first half of this year, with the fed funds rate peaking at 2.50-2.75%. But we are increasingly confident in our view that a slowdown in economic growth to below …
18th January 2019
The 1.1% surge in manufacturing output in December, which admittedly was boosted by some temporary factors, suggests that US is not (yet) succumbing to the global industrial slowdown. … Industrial Production …
We have long argued that, rather than trade policy, an extended Federal government shutdown would be the key downside risk to the economy this year. Sure enough, the current stand-off is already the longest on record and is prompting many forecasters to …
Weaker global growth and the stronger dollar will cause a marked slowdown in US export growth this year. Alongside the domestic headwinds from the fading fiscal stimulus and tighter monetary policy, that adds to our view that GDP growth will slow below …
16th January 2019
With financial markets rebounding this week and the incoming domestic activity data relatively strong, we still expect the “patient” Fed to raise interest rates this year. But core PCE inflation looks set to remain stable at just below the Fed’s 2% …
11th January 2019
The 0.1% m/m fall in headline consumer prices in December won’t concern the Fed as it can be explained by the plunge in gasoline prices. But the 0.2% m/m gain in core prices, which left the core CPI inflation rate unchanged at 2.2%, lends support to Fed …
There is a clear possibility that, as in early 2016, slowing global growth and further weakness in financial markets will prompt the Fed to abandon its plans to continue hiking interest rates. With the latest data suggesting that the domestic economy is …
9th January 2019
The slowdown in narrow money growth to a 10-year low in November is nothing to fear because it mainly reflects a shift in the portfolio demand for money. With broad money and bank loans expanding at a healthy pace, there is little to suggest a sharp …
The latest NFIB and JOLT surveys suggest that labour market conditions remain exceptionally tight, although higher interest rates are restraining business investment. … Borrowing costs an increasing drag on …
8th January 2019
Firing Fed Chair Jerome Powell, even if President Donald Trump actually had the power to do so, would do little in practical terms to change the future course of monetary policy. Arguably the bigger risk is that Trump’s frustrations with Powell could lead …
The Federal government has now been partially shuttered for the past two weeks, which already makes it one of the longest closures on record. Given the intransigence on both sides, there is a very good chance that the current shutdown will exceed the …
4th January 2019
The far bigger than expected 312,000 jump in non-farm payrolls in December would seem to make a mockery of market fears of an impending recession. Admittedly, employment is a coincident indicator, whereas the ISM manufacturing index, which we learned …
The sharp fall in the ISM manufacturing index to 54.1 in December, from 59.3, echoes the deterioration in the other manufacturing surveys and suggests that the slowdown in global growth is starting to take its toll on the US economy. It also provides the …
3rd January 2019
Our model points to a 180,000 gain in non-farm payrolls in December, with the unemployment rate dropping back to 3.6%. Base effects mean that annual wage growth probably declined to 2.9%. … Payroll gains to bounce …
2nd January 2019
The 0.8% m/m rebound in durable goods orders in November masked further weakness in underlying orders, suggesting that growth in business equipment investment continued to slow in the fourth quarter. But with consumption growth still strong, we estimate …
21st December 2018
The clear view in financial markets in the wake of the December FOMC meeting is that any further rate hikes over the coming months are likely to be reversed in 2020. Our long-held forecast is that a sharp slowdown in economic growth next year will prompt …
The Fed hiked the fed funds target range by 25bp today, to between 2.25% and 2.50%, as most still expected, but tempered the move by slightly revising down Fed officials' projections for additional rate increases in 2019 and beyond. Still, with the vote …
19th December 2018
A partial government shutdown this Friday would probably have only a modest impact on the economy. With the current gridlock only likely to intensify once the Democrats assume control of the House, however, the chances of a more damaging fight over the …
The boost to purchasing power from the recent plunge in gasoline prices has already fed through to stronger real consumption growth. Even assuming a more modest rise in December, control group retail sales are on track for a 5% annualised gain in the …
17th December 2018
As the fiscal stimulus fades and the lagged impact of monetary tightening intensifies, we expect GDP growth to slow from 2.9% in 2018 to 2.2% in 2019 and only 1.2% in 2020. Markets apparently believe the biggest downside risk is that the US-China trade …
14th December 2018
The 0.6% m/m rise in headline industrial production last month was entirely due to a surge in mining and utilities output, which will be reversed over the coming months. The bigger story is the renewed weakness in manufacturing output, which suggests that …
The 0.9% m/m surge in underlying retail sales in November, which followed an upwardly-revised 0.7% gain in October, suggests that real consumption growth has remained stronger in the fourth quarter than we previously believed. … Retail Sales …
Our confidence in our long-held view that a shifting policy mix will cause economic growth to slow in 2019 has only strengthened in recent months. The turmoil in markets suggests that others are finally catching on. As the fiscal stimulus fades and the …
12th December 2018
The recent plunge in energy prices pushed headline CPI inflation down to 2.2% in November and will exert further downward pressure over the coming months. More important for the Fed is the continued stability of core inflation, which shows little signs of …
The recent volatility in financial markets will not stop the Fed raising rates at its meeting next week. A bigger concern for the Fed is the renewed weakness in core inflation, which may prompt some officials to revise their interest rate projections …
The big market moves over the past week – with stock markets and bond yields both falling sharply – present something of a dilemma for our own views. We have long expected an economic slowdown in 2019, as the policy mix becomes much more restrictive. …
7th December 2018
The slightly more modest 155,000 gain in payroll employment in November may not go down well in markets given the current heightened nervousness, but this is still a solid gain that suggests economic growth is gradually slowing back towards its potential …
The Fed’s latest Financial Accounts release shows that total domestic credit market debt fell back to a 12-year low of 326% of GDP in the third quarter, from a peak of 370% in early 2009. Admittedly, non-financial corporate debt and Federal government …
The sharp flattening of the yield curve, which has now inverted between two and five years out, is consistent with our view that economic growth is set to slow significantly next year. We currently place the chances of a recession in the next 12-18 months …
6th December 2018
The widening in the trade deficit to $55.5bn in October, from $54.6bn, was mainly driven by a further plunge in exports to China, and suggests that net trade will once again be a drag on GDP growth in the fourth quarter. … International Trade (Oct.) & ADP …
On balance, we still think that the Fed will raise rates twice in the opening six months of 2019, taking the fed funds target range to between 2.75% and 3.00%. The renewed weakness of core inflation could prompt the Fed to move to the side lines a little …
3rd December 2018
The rebound in the ISM manufacturing index in November primarily reflects the strength of domestic demand and provides some support to our forecast that GDP will expand by 2.7% annualised in the fourth quarter. Further ahead, however, we expect a …
The trade ceasefire agreed by Presidents Donald Trump and Xi Jinping bears a striking resemblance to the ill-fated deal reached back in May but, with Trump himself having personally negotiated the latest deal, this one has a much greater chance of leading …
Fed Chair Jerome Powell's language earlier this week prompted some in the markets to claim he had taken a sudden dovish turn, possibly in response to pointed criticism from President Donald Trump. We suspect that Powell was simply trying to row back his …
30th November 2018
We anticipate that growth in non-farm payrolls slowed to 190,000 in November, following last month’s post-hurricane surge. Hourly earnings growth should hit a near-decade high of 3.2%, clearing the path for a Fed rate hike in December. … Employment …
29th November 2018
Narrow money growth continues to slow, but that is mainly due to rising interest rates, which have reduced the portfolio demand for money. The stronger pace of growth in both broad money and bank loans suggests there is little reason to panic about the …
27th November 2018
