Outlook Slides: https://www.icloud.com/keynote/0iqGf9C1E8-9mHJVeQdy1U7YQ
The right response to almost all economic data releases is: Next to nothing has changed with respect to the forecast—your view of the economic forecast today is different from what it was last week, last month, or three months ago in only minor ways.
About the only news in the past week or so is that the Federal Reserve has—behind the curve—become convinced that it raised interest rates too much in 2018. To the extent they attribute their change of view to news, the news is that President Trump is a chaos monkey with respect to international trade—but that was well known back in 2015.
Worth noting is that the ten-year CPI inflation breakeven is now 1.6%. If investors were risk neutral with respect to bearing this particular inflation risk, this breakeven ought to be 2.5% if investors expected the Federal Resrve to meet its 2.0% PCE inflation target over the next decade:
Federal Reserve Bank of New York: Nowcasting Report: June 21, 2019: "The New York Fed Staff Nowcast stands at 1.4% for 2019:Q2 and 1.3% for 2019:Q3. News from this week's data releases left the nowcast for 2019:Q2 largely unchanged and decreased the nowcast for 2019:Q3 by 0.4 percentage point. For 2019:Q3, negative surprises from regional survey data drove most of the decrease...
Specifically, it is still the case that:
- The Trump-McConnell-Ryan tax cut has been a complete failure at boosting the American economy through increased investment in America.
- But it has been a success in making the rich richer and thus America more unequal.
- And it delivered a short-term demand-side Keynesian fiscal stimulus to growth that has now ebbed.
- U.S. potential economic growth continues to be around 2%/year.
- There are still no signs the U.S. has entered that phase of the recovery in which inflation is accelerating.
- There are still no signs of interest rate normalization: secular stagnation continues to reign.
- There are still no signs the the U.S. is at "overfull employment" in any meaningful sense.
A change from 1 week ago: The Federal Reserve has—behind the curve—become convinced that it raised interest rates too much in 2018...
A change from 1 month ago: An 0.8%-point decrease in our estimate of what production will be over April-June.
A change from 3 months ago: The U.S. grew at 3.2%/year in the first quarter of 2019—1.6%-points higher than had been nowcast—but the growth number you want to put in your head in assessing the strength of the economy is the 1.6%/year number that had been nowcast. The falling-apart of Trump's trade negotiating strategy with China will harm Americans and may disrupt value chains, and the might be becoming visible in the data flow.
A change from 6 months ago: Stunning dysfunctionality in the British Conservative Party has put a destructive, hard, no-deal Brexit on the scenario list...
#macro #forecasting #highlighted