The right response to almost all economic data releases is: Next to nothing has changed with respect to the forecast. 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 Reserve to meet its 2.0% PCE inflation target over the next decade:
Federal Reserve Bank of New York: Nowcasting Report: June 28, 2019: "The... Staff Nowcast stands at 1.3% for 2019:Q2 and 1.2% for 2019:Q3...
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.
Changes from 1 month ago: A 1.0%-point decrease in our estimate of what production will be over April-June. The Federal Reserve has—behind the curve—become convinced that it raised interest rates too much in 2018.
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...
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