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While attention has been focused on how shortages and surging prices are holding back real consumption, those same factors are weighing even more heavily on business equipment investment. Faced with widespread labour shortages, low borrowing costs and …
4th November 2021
The Fed unveiled its QE taper today, as widely expected, but is still insisting that the surge in inflation is "largely" transitory, which suggests the doves have the upper hand. The Fed announced that it will reduce the pace of its asset purchases …
3rd November 2021
The August Job Openings and Labor Turnover survey released yesterday added to signs that labour shortages are still getting worse at a time when many of the temporary factors that were supposedly holding back labour supply are easing. We’re getting more …
13th October 2021
The entrenched positions of both sides suggest the deal to suspend the debt ceiling until December may only delay rather than avert a crisis. And in that scenario, we doubt that the Treasury minting a $1trn platinum coin would offer the easy way out. The …
7th October 2021
We still expect Congress to avoid a partial government shutdown at the start of next month and to raise the debt ceiling before a full-blown crisis develops in late October. But the negotiations over the latter will go down to the wire, which always …
27th September 2021
Fed officials gave a heavy hint today that the QE taper will be formally announced in November and, presumably in response to concerns that the surge in inflation won't be as transitory as they originally hoped, there were notable increases in the median …
22nd September 2021
The spread of the Delta variant domestically has triggered a temporary reversal in the reopening inflation in high contact services, but its spread across other parts of the world will intensify supply shortages and drive goods prices higher. At the same …
16th September 2021
With authorities having shown no appetite to reimpose restrictions on activity and new virus cases now levelling off, the Delta variant is still unlikely to have as big an impact on the economy as previous waves. That said, it adds to a range of other …
13th September 2021
In his Jackson Hole speech, Fed Chair Jerome Powell highlighted alternative measures of inflation, including the Dallas Fed trimmed-mean PCE and inflation ex-durable goods, which he claimed were consistent with inflation falling back close to the Fed’s 2% …
9th September 2021
The continued surge in job openings and elevated quits rate in July suggest that labour shortages are still intensifying, which will put further upward pressure on wages. (See Chart 1.) There is little evidence that the return to in-person schooling or …
8th September 2021
The latest data show that growth in the main monetary aggregates is slowing even before the Fed starts tapering its monthly asset purchases, although it remains strong by historic standards. (See Chart 1.) With the Fed likely to begin reducing its monthly …
1st September 2021
With the Delta-linked resurgence in coronavirus infections adding to the downside risks to economic growth and officials still split on exactly what qualifies as “substantial further progress” toward meeting the full employment goal, we don’t expect Chair …
26th August 2021
The bipartisan infrastructure deal, which could be passed by end-September, would provide no meaningful boost to the economy over the next couple of years. The $3.5trn spending package that Democrats aim to pass via reconciliation later this year could …
25th August 2021
The ongoing surge in both job openings and quits in June suggests that labour shortages are still getting worse. (See Chart 1.) While the acceleration in payroll gains in recent months suggests that is not proving as long-lasting a drag on hiring as we …
9th August 2021
Whether President Joe Biden chooses to reappoint Jerome Powell or to nominate Lael Brainard to be the next Fed Chair, it is unlikely in itself to have much impact on the near-term outlook for monetary policy. With up to three other vacancies for Biden to …
5th August 2021
Although the headline data show bank loans stagnant (see Chart 1), that is mostly due to the forgiveness of Paycheck Protection Program loans and mortgage securitisations, with the broader evidence pointing to an acceleration in credit growth. Narrow …
The Fed took a small step toward the eventual tapering of its asset purchases by altering the language in the statement released today, but officials appear to be in no rush. We still expect an announcement in August or September, with the taper itself …
28th July 2021
In contrast to the stronger payrolls figures released last week, the latest survey data suggest that labour shortages remain acute. That supports our view that the acceleration in employment growth in June probably wasn’t a sign of things to come and …
7th July 2021
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 …
16th June 2021
The surge in job openings and voluntary quits in April add to the survey and anecdotal evidence that labour shortages are becoming increasingly acute. (See Chart 1.) Those shortages look set to persist for some time and point to both wage growth and price …
8th June 2021
Growth in the key monetary aggregates and bank lending has turned up over recent months (see Chart 1), driven in part by the Fed’s continued asset purchases . The Fed’s $120bn monthly purchases will push its balance sheet above $8trn soon. (See Chart 2.) …
26th May 2021
The NFIB and JOLT surveys published today add to evidence from the April employment report that labour shortages are widespread, pushing up prices and potentially acting as a brake on the recovery . The further increase in the NFIB jobs hard to fill index …
11th May 2021
The sharp drop in demand for vaccines in recent weeks is a risk to our assumption that the rollout reaches critical mass over the coming months. That could mean infections and hospitalisations remain elevated, but we doubt that would be a big drag on the …
4th May 2021
The Fed’s latest Senior Loan Officer Survey shows that lending standards are being eased across the board, which will help keep consumption and investment growth solid even as support from fiscal policy fades . The survey showed that a majority of banks …
Although it took a more upbeat tone on the economic outlook and acknowledged that inflation has risen in its statement released after today’s FOMC meeting, the Fed offered no hints that it was considering slowing the pace of its asset purchases, let alone …
28th April 2021
The $1.8trn in spending and tax credits in the American Families Plan would provide a relatively small boost to GDP growth as, like the earlier infrastructure proposals, it would be mostly paid for with higher taxes. With the Republicans even less likely …
We suspect that President Joe Biden will struggle to garner bipartisan support for his $2trn in infrastructure spending, even if he was willing to placate centrist Senate Republicans by dropping his proposal to fully fund that investment by raising …
31st March 2021
The Fed’s asset purchases are fuelling a continued surge in the narrow money aggregates, but growth in both our M3 measure of broad money and bank lending remain on a downward trend. (See Chart 1.) The Fed’s balance sheet has continued to expand in step …
30th March 2021
The unusual rise in the Fed’s preferred PCE measure of inflation above CPI inflation in January partly reflects the impact of the differing methodology which, as spending patterns return to pre-pandemic norms, should be reversed this year. But it is also …
24th March 2021
The updated economic projections released after the Fed’s mid-March meeting show that officials expect strong economic growth this year to have only a transitory impact on inflation, which explains why most still aren’t thinking about thinking raising …
17th March 2021
Although Democrats are close to securing passage of nearly all the $1.9trn originally requested by President Joe Biden in his American Rescue Plan, which is significantly more than the $1trn in additional money we had originally assumed would be coming …
6th March 2021
Around half of the four million decline in the labour force over the past year reflects a wave of early retirements which is likely to be irreversible. The smaller 2.3 million drop in prime-age participation is almost entirely due to pandemic-related …
3rd March 2021
If real yields continue to rise we could see the Fed shifting the composition of its monthly asset purchases to focus more on the long end of the curve, but we doubt that it would be willing to adopt an explicit yield control target, particularly not as …
2nd March 2021
Even if a significant share of the $1.6trn of student loan debt owed to the Federal government was forgiven, it would provide only a limited boost to activity while driving a potentially sizable further increase in the budget deficit. President Joe Biden …
18th February 2021
The continued surge in growth of narrow measures of the money supply underline that the economy is awash with liquidity, but that will not trigger a surge in price inflation when growth in the broader money supply and bank lending are trending lower. (See …
16th February 2021
The latest NFIB and JOLT surveys suggest that labour market conditions remain stronger than the headline data imply and add to the evidence that inflation will rebound this year. The drop in the job hiring rate in December is no surprise given the …
9th February 2021
Fed Chair Jerome Powell’s claim that the ‘true’ unemployment rate is still close to 10% only makes sense if the four million workers who left the labour force last year will return. It’s still too soon to tell for sure, but the evidence so far suggests …
4th February 2021
The Fed’s Senior Loan Officer Survey reveals that access to credit is improving for consumers, which will support an acceleration in consumption growth this year. Although the latest Senior Loan Officer Survey shows a small net share of banks continuing …
2nd February 2021
The Fed acknowledged in its post-FOMC meeting statement today that the economic recovery weakened in the final couple of months of last year, but balanced that near-term pessimism with greater optimism that vaccines had reduced the medium-term risks to …
27th January 2021
The rebound in market-based inflation compensation measures will not alarm the Fed since expectations are still relatively muted. Instead, Fed officials are more likely to view the rise as a welcome vindication of the tweaks they made to the policy …
26th January 2021
The surge in narrow money growth is entirely due to regulatory changes and a substitution out of savings accounts due to low interest rates. (See Chart 1.) Our measure of M3 shows broad money growth has slowed, dampening fears that a surge in money will …
20th January 2021
The plunge in small business optimism in December is mostly noise related to the election, but the clear signal from both the NFIB and JOLT surveys out today is that inflationary pressures appear to be building . The NFIB headline optimism index tends to …
12th January 2021
With Democrats picking up both Georgia Senate seats in yesterday’s run-off elections, President-elect Joe Biden will have a much easier time confirming his picks for cabinet positions and the chances of a limited fiscal stimulus passing further down the …
6th January 2021
The $900bn fiscal relief deal agreed by Congress won’t represent as big a fiscal expansion as the headline figures suggest as it appears to mostly involve recycling the unused funding from previous stimulus deals this year. Nevertheless, it provides …
22nd December 2020
The additional $900bn stimulus that looks likely to be passed by Congress within the next day or two means that we are raising our GDP growth forecast for 2021 to 5.5%, from 5.0%. We recently incorporated new assumptions on vaccines into our baseline …
21st December 2020
The Fed tweaked the guidance for its asset purchases in the statement issued after the conclusion of today's FOMC meeting, with the new language implying those purchases could continue for longer than previously believed. Nevertheless, with yields already …
16th December 2020
The relative resilience of state & local government tax revenues during the pandemic means that the overall budget shortfalls facing those governments are likely to be smaller than many had feared. That reduces the downside risk of state & local spending …
14th December 2020
The recent surge in coronavirus infections means that economic growth will be slower than we previously assumed in both the fourth quarter and the first quarter of next year. As the associated restrictions on activity are eased early next year, however, …
30th November 2020
The huge amount of personal savings built up during the pandemic, if unleashed, represents perhaps the biggest upside risk to the economy over the coming year or two. But even once the spread of the virus is brought under control, there are reasons to …
24th November 2020
The Treasury’s decision not to extend the majority of the Fed’s emergency lending facilities beyond the end of the year is unlikely to have a major impact on the economy given that those facilities made just $25bn of loans. At the margin, however, it …
20th November 2020