Fed still preparing ground for QE taper

We think the sharp slowdown in employment growth in August and broader signs of weakness in the incoming activity data mean the Fed will hold off formally announcing a QE taper at its September meeting. The tapering discussion will take centre stage, but we are just as interested in the updated economic projections which will include 2024 for the first time. The latter will provide a guide to how quickly Fed officials see rates returning to neutral once conditions for lift-off have been met.
Michael Pearce Senior US Economist
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US Economics Weekly

Delta impact evident in both CPI and retail sales

While the data released this week showed retail spending picking up in August as price gains moderated, the figures are still consistent with a sharp slowdown in consumption growth in the third quarter while underlying inflationary pressures continue to build.

17 September 2021

US Economics Update

Rising cyclical pressure will keep inflation elevated

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 time, transportation costs are soaring, energy prices are proving more resilient than we expected and cyclical inflation is still building. The upshot is that, while price inflation will fall next year, we expect it to rebound to well above 2% in 2023.

16 September 2021

US Data Response

Retail Sales (Aug.)

Even though the 0.7% rise in headline retail sales in August was much better than expected, the details were far less positive, with big downward revisions to previous months, while the rise in online and grocery store spending, which contrasts with stagnant spending at bars and restaurants, suggesting that Delta fears are playing a key role.

16 September 2021

More from Michael Pearce

US Economics Update

Fed’s core measures point to sustained inflation ahead

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% target. But looking at the full suite of the Fed’s alternative measures, on balance they suggest a risk that inflation remains elevated in the years ahead. What next for the ECB? We’re hosting a post-mortem after Thursday’s Governing Council meeting at 1100 ET to discuss its decision and our views on the euro-zone’s economic and inflation outlook. Register here.

9 September 2021

US Economics Update

Delta contributing to worsening labour shortages

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 the expiry of Federal UI benefits this week will do much to alleviate those shortages. Instead, virus fears appear to be a bigger factor, with the surge in infections over recent months causing more potential workers to remain on the sidelines.

8 September 2021

US Data Response

ISM Manufacturing Index (Aug.)

The details of the small rise in the headline ISM manufacturing index in August to 59.9, from 59.5, suggest demand remains strong and that, while some of the recent price pressures have faded, supply constraints, and particularly labour shortages, are still a drag.

1 September 2021
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