US: Economy to grow significantly above potential in 2018 and 2019 - Nomura


Analysts at Nomura expect the US economy to continue to grow significantly above potential in 2018 and 2019, boosted by tax cuts and a pick-up in government spending.

Key Quotes

“Job gains remain well above the long-term sustainable pace and will likely continue to push down the unemployment rate to levels not seen since 2001. However, productivity growth remains soft, held down by structural declines in underlying business dynamism (e.g., the rate of new business formation and workers changing jobs). The lower dynamism also places downward pressure on wage growth.”

Inflation: Transitory factors that contributed to the weak inflation in 2017, such as prices of wireless telecom services and medical care commodities, have largely reverted. In 2018 and 2019, we expect core inflation to pick up gradually as labor markets tighten and the economy operates above potential. Core PCE inflation may pick up slightly faster than core CPI as healthcare service inflation could accelerate while rent inflation gradually slows. With upside risk to healthcare prices as well as expected further labor market tightening, we expect core PCE inflation to reach 2.3% in Q4 2019.”

Policy: Facing strong momentum in aggregate demand, tightening labor markets, and some evidence of a rebound in inflation, we look for the Fed to hike four times in 2018 and two more times in 2019. We think the roll-off of the Fed balance sheet will gradually raise long-term interest rates. We do not believe that new Fed leadership will cause a material change in the near-term trajectory of monetary policy.”

Risks: Financial conditions remain accommodative but recent market activity suggests they can turn quickly. The US and China escalated tit-for-tat threats of imposition of tariffs. At the moment, we continue to view these actions as opening positions for an eventual negotiated settlement between the US and China. However, the Trump administration’s aggressive stance raises the risk of a full-blown trade conflict between the two countries, in our view.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

AUD/USD holds rebound near 0.6650, focus shifts to US data, Fedspeak

AUD/USD holds rebound near 0.6650, focus shifts to US data, Fedspeak

AUD/USD is holding steady while consolidating the previous rebound near 0.6650 in Tuesday's Asian trading. The pair fails to capitalize on improved Australian sentiment data and a risk-on mood, as the focus shifts to the US data and Fedspeak for fresh trading impetus. 

AUD/USD News

USD/JPY stays weak below 159.50 amid Japanese verbal intervention

USD/JPY stays weak below 159.50 amid Japanese verbal intervention

USD/JPY is under pressure below 159.50 early Tuesday, as the Japanese Yen benefits from the Japanese verbal intervention. Japan's Hayashi said he will closely monitor the FX moves and take necessary steps. Meanwhile, the US Dollar licks its wounds ahead of sentiment data. 

USD/JPY News

Gold: Sellers return after facing rejection above $2,330

Gold: Sellers return after facing rejection above $2,330

Gold price is back in the red after facing rejection again above $2,330 in Tuesday's Asian trading. Gold price reverses a part of the previous day's rebound even as the US Dollar licks its wounds alongside the sluggish US Treasury bond yields. US data and Fedspeak are on tap. 

Gold News

Bitcoin may be set for a price rebound amid alleged Trump's plan to speak at Bitcoin convention

Bitcoin may be set for a price rebound amid alleged Trump's plan to speak at Bitcoin convention

Bitcoin's price dropped below the $60K level briefly on Monday following news of defunct exchange Mt Gox beginning to pay its creditors in July. However, Santiment data reveals that the recent spike in social volume of the phrase "bottom" could signal a potential price rebound.

Read more

Trading the week ahead

Trading the week ahead

Starting Tuesday, we're watching the Canadian CPI print closely. The Bank of Canada's recent minutes suggested hesitation about the last rate cut, hinting they might delay further cuts. This makes the upcoming inflation data crucial.

Read more

Forex MAJORS

Cryptocurrencies

Signatures