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QE put to bed, the focus shifts to rate hikes

As widely expected, the Federal Reserve announced at its 20 September meeting the start of the ‘normalisation’ of its balance sheet; some of its bond holdings will not be reinvested from October on. The Fed’s balance sheet should therefore start to shrink gradually. Fed chair Janet Yellen justified this decision by saying that “stimulus is […]

Trump more focused on trade deficit than budget deficit

Second-quarter current account data from the US Bureau of Economic Analysis showed once again a sizeable trade deficit, particularly in merchandise trade excluding energy. The energy boom driven by shale gas and light oil has reduced the US’s dependency on energy imports, in turn improving the headline current-account reading. But the US is still a […]

Fed may open door for December rate increase

The Fed is widely expected to announce a partial shrinkage of its balance sheet at its 20 September meeting, in line with the guidance it provided in June. We also expect Yellen to point to the possibility of another rate hike soon (while remaining vague about the exact timing), dependent on further improvements in inflation. […]

US core CPI inflation stable at 1.7% in August

CPI inflation was 0.4% m-o-m, boosted by gasoline prices, pushing the y-o-y print to a still-tepid 1.9%. Core CPI inflation was up 0.25% m-o-m; the y-o-y reading was stable at 1.7%. While improving from recent lows, there is no sign of a ‘regime shift’ in US inflation, despite the tight labour market. Globalisation and technology […]

Hopes of US fiscal easing are evaporating

Chaotic developments in the White House and ongoing gridlock in Congress have significantly reduced our expectations that the Trump Administration will bring a major fiscal boost to the US economy, particularly in 2018. In other words, we no longer expect a growth- and sentiment-boosting fiscal reform, nor a large-scale infrastructure spending plan. This is the […]

Soft household formation to curb US housing

The recently released Census Bureau’s Annual Social and Economic Supplement (ASEC) brought sobering news for the US housing market: new household formation slowed significantly, to 405,000 in 2016, the lowest level since 2009 (+357,000), compared with 1,232,000 in 2015. In other terms, the number of households grew only 0.3% last year, compared with +1.0% in […]

Internet disruption is affecting the laws of economics

The US economy is challenging ‘textbook’ macroeconomics. The labour market is tight, but wage growth is paltry. Growth is chugging along steadily and the output gap (the difference between actual GDP and its theoretical trajectory at full potential) is gradually closing, but inflation remains muted. Clues as to why things are not panning out the […]

US job creation is still healthy, but wage growth remains modest

Non-farm payrolls (NFPs) rose 156,000 in August, bringing the three-month average to a still-robust 185,000/month. The three-month average stands higher than the 12-month average of 175,000, suggesting that underlying momentum in the US labour market – and the broader economy – remains healthy. The unemployment rate increased marginally (+0.1%) to 4.4%, but this remains within […]

Profits are strong, but investment is still sluggish

A major feature of the US growth recovery since mid-2009 has been the significant improvement in corporate profits. But improvement has been mostly achieved at the expense of investment (capex) and wage growth, which have been kept on a tight leash. This has puzzled policymakers, including the Federal Reserve, which has been somewhat disorientated by […]

US economy: Too-loose financial conditions versus too-low inflation

Several Federal Reserve (Fed) officials, and a few foreign central bankers, will meet for their traditional August gathering in Jackson Hole, Wyoming, on 24–26 August. Fed Chair Janet Yellen will give the opening speech on Friday (08:00 local time, 16:00 Geneva), but with neither a Q&A session, nor a scheduled media briefing. Unlike her predecessor, […]