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The Fed’s revival of financial crisis-era programs and a huge ramp-up in the pace of its open-ended Treasury purchases in recent days could help to stem some of the bleeding in financial markets. But with broader financial conditions still tightening, …
19th March 2020
The past couple of weeks have been dominated by the financial market impact of the coronavirus pandemic, with equity markets continuing to plummet, the dollar surging and signs of strain persisting in money markets, despite the Fed’s interventions. The …
The rapid escalation of measures to contain the coronavirus outbreak suggests that the economic damage will be even larger than we anticipated only a few days ago, and we are now pencilling in a 10% annualised decline in GDP in the second quarter. For now …
18th March 2020
Coronavirus outbreak will hit activity hard The February retail sales data provide further evidence that the economy was in reasonable shape before the coronavirus struck, but that won't prevent spending from falling sharply over the next few months. The …
17th March 2020
The Fed’s decision to slash interest rates to near-zero won’t stop the economy falling into a recession, but the package of liquidity-boosting measures will help prevent credit markets seizing up, reducing the risks a deeper downturn. We expect the Fed to …
16th March 2020
The shift to more aggressive containment measures this week has prompted us to lower our forecast for GDP growth this year to just 0.6%. In response, we expect at least a 50bp rate cut by the Fed next week and possibly a resumption of large-scale QE too. …
13th March 2020
The Fed has already slashed interest rates and flooded the markets with liquidity, but it will have to go further in the coming weeks, with a return to near-zero interest rates and a resumption of large-scale quantitative easing now likely . Following the …
The direct economic impact of President Donald Trump’s European travel ban will be limited, but we now anticipate more aggressive measures to contain the pandemic over the next few days – with nationwide school closures, bans on large public gatherings …
12th March 2020
Fed to follow last week’s emergency cut with another 50bp reduction next week Fed funds rate likely to return to near-zero bound at April policy meeting Plans to slow pace of balance sheet expansion to be abandoned We expect the Fed to cut interest rates …
11th March 2020
Headline inflation will fall toward 1% The drop back in CPI inflation to 2.3% in February, from 2.5%, is a sign of things to come, with the plunge in crude oil prices likely to drag headline CPI inflation below 1.0% soon. With underlying price pressures …
It looks increasingly likely that the escalating coronavirus outbreak will be met with a larger fiscal response, which should help to offset some of the economic damage. With the number of US coronavirus cases continuing to rise, financial markets in …
10th March 2020
Based on the continuing slump in stock markets and the global spread of the coronavirus, we agree with the view in markets that the Fed will cut interest rates to near-zero within the next couple of months. Fed officials would prefer to wait for evidence …
9th March 2020
The plunge in global oil prices should be close to neutral for the US, but we suspect it will still knock a few tenths off annualised GDP growth in the second quarter, as the big hit to mining investment is not fully offset in the short-term by the boost …
The Fed’s emergency rate cut this week made it clear that officials are taking the economic risks posed by the coronavirus outbreak seriously. But with the number of new cases rising sharply, we don’t think lower interest rates will prevent activity …
6th March 2020
Economy in robust health ahead of coronavirus impact The 273,000 gain in non-farm payrolls in February confirms that the US economy was in very good shape before the coronavirus hit. Nevertheless, with the 10-year Treasury yield slumping to a new record …
Our current working assumption is still that the number of coronavirus cases in the US is restricted to the low tens of thousands which, in a country of more than 325 million, would represent an infection rate of less than 0.1%. Furthermore, we suspect …
5th March 2020
Joe Biden’s comeback to win most of the Super Tuesday states means he is now the front-runner for the Democratic nomination, and his campaign could gather further momentum in the coming days if Mike Bloomberg pulls out. That makes a market-friendly …
4th March 2020
In a dramatic turnaround from last week, when even the most dovish of Fed officials didn’t appear to support any additional policy loosening, the Fed announced an emergency inter-meeting 50bp rate cut this morning – lowering the fed fuds target range to …
3rd March 2020
It has become clear over the past couple of days that the global spread of the coronavirus cannot be contained . The spike in reported cases within the US suggests that we are in the early stages of a domestic epidemic that will have a more marked impact …
In light of the accelerating spread of the coronavirus – and the economic disruption that is likely to follow – we are pulling down our GDP growth forecasts for Q1 and Q2 of this year. Growth is likely to rebound over the second half of the year, but most …
2nd March 2020
Disruption to manufacturing supply chains likely to worsen The modest fall in the ISM manufacturing index to 50.1 in February, from 50.9, leaves the index still above the levels seen over the second half of last year. Nevertheless, the survey clearly …
The threat of a coronavirus outbreak in the US is a significant downside risk to the economic outlook. The Fed can do nothing to halt the spread of the virus, but a further tightening of financial conditions or a slump in business and consumer confidence …
28th February 2020
We expect February’s employment report to ease some of the recent fears about the health of the economy, with non-farm payrolls rising by 230,000 and the unemployment rate dropping back to a 50-year low. January’s report indicated that the labour market …
27th February 2020
Business equipment investment rebounding Durable goods orders were held down last month by a plunge in volatile defence orders, but the surge in underlying capital goods orders and shipments suggests business equipment investment growth is beginning to …
Risk still modest, but models can’t capture virus fears The recent re-inversion of the Treasury yield curve and the sharp sell-off in equities, due to growing fears that the new coronavirus will develop into a full-blown pandemic, have reignited fears …
If the current robust trend in employment growth continues, the unemployment rate could eventually fall to its lowest level since the early 1950s. But even if it does, there are several reasons to think that would be overstating the true degree of …
25th February 2020
While the incoming data have remained mostly positive, the plunge in the Markit composite PMI in February suggests that economic growth could be set for a further slowdown in the first quarter, as the temporary drags from the crisis at Boeing and …
21st February 2020
PMIs fall into recessionary territory The big fall in the Markit composite PMI, to the lowest level since the series began in late-2009, was driven by a plunge in the services index and will inevitably raise fears about the underlying health of the …
In contrast to market expectations, we are still sceptical that the Fed will cut interest rates this year, but we agree with Treasury investors that rates are more likely to fall than rise over the next few years. Over the past six weeks, futures markets …
19th February 2020
Although the Boeing shutdown and the coronavirus outbreak pose downside risks to the economy in the first quarter, there are mounting signs that underlying momentum in the economy is strengthening. We estimate the halt in 737 Max production could reduce …
Judy Shelton’s rocky Senate nomination hearing this week means that President Donald Trump’s efforts to reshape the Fed from the outside could yet fail at the first hurdle. But the dovish Christopher Waller should secure Senate approval and, with the …
14th February 2020
Consumption soft patch unlikely to continue for long The unexpected weakness in underlying retail sales in January suggests that consumer spending is still struggling for momentum but, with jobs growth solid and consumer confidence resilient, we doubt …
The sharp fall in job openings over the past year appears to be a lagged response to the earlier slowdown in hiring intentions rather than a sign that labour market conditions are about to deteriorate. We still expect solid jobs growth to help drive a …
13th February 2020
Core inflation going nowhere fast The continued stability of core CPI inflation in January supports our view that the Fed will not be raising interest rates again for the foreseeable future. The rise in headline inflation to a 15-month high of 2.5%, from …
When the results of the Iowa caucuses were eventually released they only increased the uncertainty over who will eventually become the Democratic nominee. According to the latest betting odds, Joe Biden’s fourth place in the caucuses has all but written …
7th February 2020
Payrolls boosted by mild weather; revisions not as bad as feared The 225,000 increase in non-farm payrolls in January suggests that employment benefitted from the unseasonably mild weather (it was the fifth warmest January on record), with the …
With flights to and from China halted and the handful of domestic cases isolated, the risk of a coronavirus epidemic developing in the US – and the potentially devastating economic disruption that would entail – is seemingly low. However, reduced tourism, …
6th February 2020
The Great Moderation in the volatility of GDP growth and price inflation, which began in the 1980s, came to an abrupt end with the onset of the financial crisis in 2008 but, a decade later, what stands out again is just how stable economic growth and …
5th February 2020
The surge in Bernie Sanders’ perceived chances of the winning the Democratic nomination could yet weigh on the stock market if he continues to build momentum in upcoming primaries. Even so, our initial sense is that a Sanders presidency wouldn’t be as big …
Trade deficit widens; ADP boosted by weather The trade deficit widened to $48.9bn in December, from $43.7bn, as imports rebounded by 2.7% m/m, outpacing a 0.8% m/m gain in exports. The rebound in imports partly reflected the unwinding of disruptions in …
Further evidence economy is turning a corner The sharp rebound in the ISM manufacturing index to a six-month high of 50.9 in January, from 47.8, echoes the message from the other surveys that the prospects for factory sector activity are starting to …
3rd February 2020
GDP increased by a decent 2.1% annualised in the fourth quarter, even if the underlying details weren’t quite as upbeat. Final sales to private domestic purchasers increased by a more muted 1.4%, which was a four-year low, as consumption growth slowed …
31st January 2020
Our model suggests that non-farm payroll growth will accelerate to 185,000 in January, from 145,000. The overall tone of the report will not be as positive, however, with the annual benchmark revisions likely to show big downward revisions to gains over …
30th January 2020
Growth holds steady despite weakness in private domestic sales The 2.1% annualised gain in fourth-quarter GDP was not quite as solid as it looked, with consumption growth slowing and business investment contracting for a third consecutive quarter. …
The almost unchanged statement issued at the conclusion of this week's FOMC meeting suggests that Fed officials currently don’t believe the disruption caused by the new coronavirus warrants the type of “material reassessment” to the economic outlook that …
29th January 2020
Surveys suggest underlying orders will start to improve soon The December durable goods data suggest that business equipment investment fell again in the fourth quarter. But the recent improvement in the survey evidence suggests it should soon start to …
28th January 2020
Next week’s FOMC meeting is likely to be a low-key affair, with the resilience of the recent economic data and the Phase One trade deal justifying the Fed’s decision to bring its recent rate cutting cycle to a halt last October. This week brought …
24th January 2020
A sharp slowdown in the pace of inventory accumulation weighed heavily on GDP growth in the second half of 2019 but, with that adjustment now largely over, the turning inventory cycle looks set to support a rebound in economic growth later in 2020. After …
23rd January 2020
If President Donald Trump were to win a second term, we’d expect both fiscal and monetary policy to remain loose, amid a push to install a more dovish Fed Chair in 2022. There would also be an upside risk of a second, smaller round of deficit-financed tax …
The Fed’s recent asset purchases and repo auctions have reversed more than half of the earlier quantitative tightening. Even so, it is the Fed’s interest rate cuts that have been the far more important factor driving money & credit aggregates . (See Chart …
22nd January 2020
