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Saturday 29th July 2023Rates are rising in Europe and the USA ... So what happens next?
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| | Hi Friend,
U.S. Gross Domestic Product, Second Quarter 2023
In the U.S. real gross domestic product (GDP) increased by 2.6 percent year on year in the second quarter of 2023. This according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.8 percent.
The increase in real GDP reflected increases in consumer spending and government spending. Exports increased by 1.5%. Imports, fell by almost 5%.
The increase in consumer spending reflected increases in both services and goods. Within services, the leading contributors to the increase were housing and utilities, health care, financial services and insurance, and transportation services. Within goods, the increase was led by recreational goods and vehicles as well as gasoline and other energy goods.
The PCE price index increased 2.6 percent, compared with an increase of 4.1 percent in Q1. The price trend will ease pressure on the Fed to hike rates. Thee growth trends will suggest a hard landing and recession can be avoided.
This week, the IMF revised the forecast for U.S. Growth to 1.8% in 2023 and 1.0% in 2024. This was a modest upward revision from the April update. Average growth rate in the first half was 2.2%.
This week, the Congressional Budget Office also provided an update to the Economic Outlook for the U.S.A. Economic growth slows and then picks up. The growth of real gross domestic product (GDP) slows to a 0.4 percent annual rate during the second half of 2023. For the year as a whole, real GDP increases by 0.9 percent. After 2023, growth accelerates as monetary policy eases. Real GDP increases by 1.5 percent in 2024 and by 2.4 percent in 2025.
The CBO forecast already out of date. Even with a slow down in the second half, growth for the year would out turn at 1.5%.
Friday Forward Guidance ...
Don't Miss our Friday Forward Guidance for Friday 28th July. Every week we update our scenario forecasts for base rates in the U.S., UK and Europe over a three year period. We also include our expectations for inflation, as an input to the central bank reaction function, in the Saturday Economist updates.
This week, the Fed raised rates by 25 basis points on Wednesday. The ECB followed with a 25 basis point rise on Thursday. The stage is set for a similar move when the MPC meets on Thursday next week.
Where Are Rates Headed? Bet on Higher for Longer but probably not by much. A further 25 point rise is possible in the U.S., Europe and the U.K. (following next week's hike). The Fed and the ECB prefer to keep markets guessing.
"It is certainly possible that we would raise funds again at the September meeting if the data warranted", Fed Chairman Jerome Powell told reporters on Wednesday. 'And I would also say it's possible that we would choose to hold steady at that meeting''.
Christine Lagarde, president of the central bank, told a press conference: "There is the possibility of a hike. There is the possibility of a pause. It's a decisive maybe."
The full update is available on the Saturday Economist Website Don't Miss That !
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Stay
up to date with our Friday Forward Guidance Features on Rates and our
Monday Morning Markets updates on equities, bond yields, exchange rates,
and commodity prices. Available on The Saturday Economist web site. We also cover European rates on the site ...
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Have a great weekend,
John |
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