July 12, 2019: Weekly Forecasting Update

FRED Graph FRED St Louis Fed

The right response to almost all economic data releases is: Next to nothing has changed. We are where we were a year ago: Stable growth at 2% per year with no signs of rising inflation or a rising labor share.

The only significant difference that the Fed has recognized that its hope of normalizing the Fed Funds rate in the foreseeable future is vain, and has now recognized that its confidence over the past six years that we were close to full employment was simply wrong:

Federal Reserve Bank of New York: Nowcasting Report: Junly 5, 2019: "The... Nowcast stands at 1.5% for 2019:Q2 and 1.8% for 2019:Q3. News from the JOLTS, CPI, and PPI releases were small, leaving the nowcast for both quarters broadly unchanged...


Key Points:

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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