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The introduction of one or more highly effective vaccines early next year would prompt us to revise up our 2021 GDP forecast, possibly quite significantly. The prospects of a vaccine might convince Congress to scale back the size of any fiscal stimulus …
10th November 2020
The high-frequency data suggest there is a growing risk that the recovery stalls over the next month or two, even as the growing potential for effective vaccines together with a bipartisan fiscal stimulus mean the balance of risks to our forecasts further …
Much of President-elect Joe Biden’s agenda will be dead on arrival with the Republicans maintaining control of the Senate, but there is still a chance of more fiscal stimulus being passed, albeit probably not until after Biden takes office on 20 th …
7th November 2020
With the markets still relatively calm amid the ongoing election uncertainty, the Fed took the predictable decision to stand pat today. However, if the election results in a divided government – as now looks likely – that will reduce the odds of any …
5th November 2020
We still don’t know the winner of the presidential election or which party will control the Senate, and, with President Donald Trump threatening to challenge the outcome, the legal wrangling and uncertainty could drag on for some time. It is still …
4th November 2020
With the race for control of Congress close and unprecedented numbers voting early this year, the results on election night are likely to be unusually volatile . If the polls are accurate and Democrats win back the White House and Senate, hopes would …
2nd November 2020
While the chances of a pre-election fiscal deal remain slim, markets appear to believe that a Democratic clean sweep of next month’s elections would result in a major post-election stimulus package. But with the Democrats unlikely to win a …
21st October 2020
The upturn in coronavirus infections in the Midwest isn’t in itself a major concern, but a more widespread resurgence in cases over the winter would raise the risks of the economic recovery going into reverse. While Europe grapples with a second wave of …
14th October 2020
Despite high unemployment, the latest NFIB survey shows small businesses are struggling to hire qualified workers, while inventory levels are exceedingly lean. In contrast to September’s softer CPI figures, the NFIB survey points to some further upward …
13th October 2020
The annual growth rate of M1 rose to a new record high in August but, with growth in the broader monetary aggregates now easing and bank loans continuing to decline, there is still little chance of that triggering a surge in price inflation. (See Chart …
7th October 2020
The FOMC’s updated economic and rate projections show that officials expect to leave the fed funds rate at the current near-zero rate until at least 2023 and probably well beyond that. With the five-year Treasury yield already at less than 0.2%, however, …
16th September 2020
With initial jobless claims still running at close to one million per week, it could be argued that, at 8.4% in August, the unemployment rate is not capturing the full extent of the slack in the labour market. But the survey evidence and the job turnover …
14th September 2020
The jobs report due on Friday should show employment continuing to rebound in August, but the ongoing weakness of demand in sectors like leisure and hospitality – which account for a higher share of employment than they do of broader economic activity – …
3rd September 2020
The recovery in manufacturing output has been relatively muted up to this point but, with goods consumption surging and, as a result, inventories now looking very lean for this stage in the cycle, we expect manufacturing output to climb back to its …
2nd September 2020
Chair Jerome Powell announced this morning that the Fed will be adopting what he described as a “flexible form of average inflation targeting”, which we expect will trigger additional policy stimulus in the form of stronger forward guidance and possibly …
27th August 2020
We estimate that non-farm payrolls increased by a more modest one million in August and without the restarting of field operations for the 2020 Census, which probably added 250,000 jobs, employment growth would have slowed even more sharply. The 1,763,000 …
The annual growth rates of the main monetary aggregates remain unusually elevated, but the growth rate of bank loans has fallen back. (See Chart 1.) Furthermore, although those monetary aggregates are significantly higher than the level 12 months ago, …
The Fed is very close to introducing changes to its policy framework that would explicitly allow for an overshoot of the inflation target to compensate for the undershoot over the past decade. Those changes to the long-run goals and strategy statement, …
25th August 2020
Even though Congress failed to prevent the $600 additional UI payments from expiring last Friday, we still expect a deal in the coming weeks which will offset the continued hit to incomes from the pandemic. With the saving rate so elevated, the bigger …
3rd August 2020
While the Fed left its policy settings unchanged and opted not to strengthen its forward guidance at the conclusion of its meeting today, its downbeat assessment of the economic outlook still suggests they will provide more accommodation in the months …
29th July 2020
Even though unemployment is likely to continue declining faster than in previous recoveries, we still expect the unemployment rate to remain elevated for years, falling to 8.7% by the end of 2020 and 5.8% by end-2021 . But the lesson from the post-2008 …
16th July 2020
The high-frequency data suggest renewed fears about the coronavirus are starting to weigh on consumption even in states that haven’t moved to reimpose restrictions, reinforcing our view that the pace of the economic recovery will slow over the next few …
8th July 2020
The Fed’s balance sheet has started to shrink again, as the emergency liquidity measures deployed at the height of the crisis have started to wind down, the pace of Treasury purchases has slowed dramatically and the rollout of the new 13( 3 ) lending …
23rd June 2020
The unexpected strength of the bounce-back in retail sales in May could mean that we are under-estimating the potential for economic activity to return to pre-pandemic levels soon. Nevertheless, capacity in some sectors, like eat-in dining, will remain …
18th June 2020
A lot could still change over the next five months but, as things stand, Joe Biden appears to be the favourite to win November’s presidential election. Biden’s policies are more moderate than some of his earlier Democratic rivals’ and we would expect his …
17th June 2020
The rise in new infections in a handful of states across the South and West is nothing like the national surge we saw in late-March and early April that triggered widespread lockdowns . (See Chart 1.) It does illustrate that the background risk of …
The dramatic pandemic-related rise in government debt has attracted most of the attention, but it is the surge in corporate debt that could exert a bigger drag on the economic recovery in coming years. The current recession is unique in many ways, not …
15th June 2020
The potential expiry of the expanded $600 weekly unemployment insurance payments at the end of July could weigh on consumption. But those payments look more likely to see at least a partial extension and, in any case, Congress appears to be united on the …
The Fed left its policy stance broadly unchanged at the conclusion of today’s FOMC meeting, but it did strengthen its forward guidance a little – by publishing interest rate projections that show nearly all officials believe the fed funds rate will still …
10th June 2020
The unexpected 2.5 million rebound in nonfarm payroll employment in May, against a consensus expectation of a 7.5 million decline , has generated a lot of speculation that the figures were either manipulated for political reasons or juiced by firms …
9th June 2020
The relative resilience of consumer confidence in spite of the huge rise in unemployment is testament to the government’s fiscal rescue efforts and suggests the recovery will accelerate as fear of the virus eases . Headline measures of consumer confidence …
21st May 2020
Congress will probably agree to another round of fiscal support over the coming weeks, but we doubt that will make a huge difference to the economy, given that it appears set to be an order of magnitude smaller than the actions already taken . Congress …
The early evidence suggests that, even in states which have begun to ease lockdown measures, demand is initially recovering only gradually. It also points to the recovery completely bypassing some sectors – suggesting that GDP will stage only a partial …
14th May 2020
Although employment should partially rebound once lockdown measures are lifted, the pandemic is still likely to result in a sustained increase in labour market slack, which will push wage growth sharply lower. Average hourly earnings growth surged to a …
13th May 2020
The usual suspects are already claiming that the surge in the growth rates of the monetary aggregates will trigger a marked rise in inflation. (See Chart 1.) But the pick-up, which is a direct result of the Fed’s asset purchases, is not going to put …
12th May 2020
The Treasury’s plan to issue more long-term debt is sensible enough when long rates are at ultra-low levels, but a more marked shift in debt issuance policy could signal that policymakers are hoping to engineer a rise in inflation to help bring the …
11th May 2020
The Fed has developed a habit of caving in the face of market pressure in recent years, but we still think the chances of it pushing the fed funds rate into negative territory are low. Fed officials have been united and consistent in arguing that the …
The surprising resilience of the Markit PMIs and ISM indices this month is more a function of the survey design than an indication that the economic hit is not as bad as the hard data suggest. The surveys are likely to do a poor job at capturing the shape …
7th May 2020
The coronavirus-induced collapse in economic activity means that state & local government tax revenues will plunge over the coming months. With balanced budget rules in most states meaning that lower revenues must be offset by lower spending, budget cuts …
6th May 2020
There is a good chance that the renewal of antagonism between the US and China, this time over the origin of the coronavirus rather than trade, will persist – and might even escalate – in the run up to November’s presidential election. We suspect that …
Since the Fed had already gone all-in on its monetary policy stimulus, it was little surprise that there no major policy announcements in today’s statement. Over the next few months the Fed will continue to expand its balance sheet toward $10trn, albeit …
29th April 2020
With Congress ramping up its fiscal stimulus rescue package, federal debt will rise above 100% of GDP this year, not far off the record high of 108% of GDP in the aftermath of WWII . That is not a concern for the next year or two, but it does raise the …
28th April 2020
The unemployment rate will surge to more than 15% in April but, unlike in a normal economic cycle, the high proportion of people on a temporary layoff leaves us hopeful that rate will come down relatively quickly, falling back below 7% by year-end. The …
23rd April 2020
President Trump’s tweet announcing a temporary ban on immigration is most likely just a short-term tactic to fire up his base. But it is hard not to see this as the beginning of an even more nativist post-pandemic policy agenda that the Trump …
21st April 2020
The scale of the Fed’s purchases of Treasury securities in the first few weeks of the pandemic, in addition to the sheer size of the broader expansion in its balance sheet, arguably suggests that the Fed is not just monetising the deficit, but has …
20th April 2020
The Paycheck Protection Program (PPP) of forgivable small business loans has come too late to prevent the huge initial wave of layoffs, but will be more useful in helping less directly affected firms stay afloat while limiting the rise in unemployment. By …
14th April 2020
The significant increase in unemployment insurance payments included in the recent fiscal package means that many claimants could end up being paid close to what they previously earned. This suggests that the unprecedented wave of layoffs in recent weeks …
8th April 2020
The coronavirus-related recession will lead to a marked increase in defaults on bank loans but, while that will hit earnings and justifies the sharp sell-off in banking stocks, the greatly improved financial health of banks means that we don’t believe …
7th April 2020
The Fed’s balance sheet has already ballooned in size to $5.7trn, from just less than $4trn before the coronavirus pandemic struck, and that’s before the introduction of its new lending facilities and purchases of corporate and municipal bonds. Using …
2nd April 2020
Claims hit record high; vehicle sales plummet This Update was originally sent to clients as a Rapid Response immediately after the data was released on 2 nd April. The surge in initial jobless claims to a record high of 6,648,000 last week, from 3,307,000 …
