In this briefing:
- Fed Policy in 2019: Low Inflation Complicates an Uncertain Outlook
- Thailand: The Sandbox
- 2019 U.S. Growth and Employment Outlook
- A Reality Check of the U.S. Economic Data Amid Market Volatility
- Preview: UK Disinflation Again in Nov-18
1. Fed Policy in 2019: Low Inflation Complicates an Uncertain Outlook
The current tone of incoming US economic data is, once again, at variance with the behavior of financial markets, whereby the data dynamic is in apparent reversal of the disconnect that prevailed when the Fed deployed ultra-accommodative policy settings.
Fed Chair Powell will not wish to convey the impression that policy is being dictated by financial markets, while firm labour demand would seemingly rule out a pause in rate hikes.
As 2019 unfolds, the persistence of low inflation, despite faster economic growth, could potentially offer the Fed some breathing space to pause raising the federal funds rate at the Federal Open Market Committee (FOMC) meeting in March.
The long-standing dichotomy in inflation trends for goods and services remains intact, while the FOMC will be paying careful attention to prospective movements in rental costs and health care for indications of future inflation momentum.
Although falling oil prices may have helped to keep inflationary expectations well-anchored, Fed policy credibility and the rising dollar exchange rate probably played more dominant roles.
The US monetary policy outlook in 2019 will become more uncertain due to a confluence of factors, but the FOMC will require faltering economic data in Q1 to justify a pause in raising the federal funds rate in March.
2. Thailand: The Sandbox
3. 2019 U.S. Growth and Employment Outlook
- In 2018, the U.S. economy experienced aggregate demand outstripping aggregate supply and output growth exceeding potential. We expect the same themes to hold in 2019 with real GDP growth at 2.7% and the unemployment rate falling to 3.3%.
- We expect aggregate demand growth to be led by a pickup in investment spending as the benefits of the December 2017 tax cut continue to filter through and as we look for some resolution on trade and tariff issues between the U.S. and China.
- There is evidence that the potential growth rate of the economy is rising but we still see 2.7% growth as being faster than potential, which we currently put at 2.1%. In addition to a continued decline in unemployment in 2019 we look for a rising real trade deficit.
- For 2020, we see real GDP growth at 2.4% and the unemployment rate drifting lower to 3.1%.
4. A Reality Check of the U.S. Economic Data Amid Market Volatility
With the continued gyrations in the equity market and the drop in bond yields, we thought it would be worthwhile to do a quick scrub of the latest news on the U.S. economy to provide a crosscheck on the message from markets.
5. Preview: UK Disinflation Again in Nov-18
- UK CPI inflation has been biased to disappoint expectations this year, and I am marginally below Consensus for the upcoming Nov-18 at 2.24% y-o-y.
- Recreation and transport prices subtract the most from my projections, but food price judgements were the overlaid assessment that triggered my forecasts to round down recently. Observed changes in about 12,000 prices drove this decision.
