US Economic Chartbooks
Please see our Economic Week Ahead Chartbook for a discussion of next week's economic releases provided in a visually friendly format that includes graphs, brief descriptions of SMR's forecasts, and links to detailed data previews. If you missed anything from last week, see our Economic Week in Review Chartbook for a look back at the releases with links to full analyses.
FOMC Minutes from Jan. 30-31 lean mildly hawkish
The minutes of the January 30-31 FOMC meeting showed a growing consensus that inflation is starting to pick up against a backdrop of full employment and rising wages. As such, a “majority of participants” noted that “further gradual” monetary policy tightening would be appropriate. A number of participants indicated that reduced labor market slack would translate into faster wage growth. This, combined with a weaker dollar, would support inflation moving back towards the Fed’s 2% inflation target in the medium run.
Fixed Income Focus: Curve flattens as rate hike expectations grow
Treasury yields were mostly higher this week, but bonds outperformed as the curve flattened in response to higher than expected CPI data on Wednesday. The long-end held in well even as stocks staged a strong rebound from the recent correction. The $/yen correlation with Treasuries had evaporated recently, but that returned this week as the long-end rallied with the yen.
Fixed Income Focus
Fed rate hikes -- four now in view
We now look for the Fed to tighten interest rates four times this year, up from our prior forecast of three hikes, absent large market turbulence that could temper the amount of rate increase. The recently passed Bipartisan Budget Act of 2018 is a significant new development on the fiscal front that greatly boosts GDP growth in 2018 and 2019. The extra fiscal spending stimulus boosts growth another 0.25 percentage points (pp), in addition to the 0.4 pp coming from tax cuts in 2018. That helps place real GDP growth near 3% in 2018. In 2019 growth looks to be boosted 0.5 pp to 2.5% and the unemployment rate falling to 3.5% by year-end 2018.
Congress passes another trillion dollars in fiscal stimulus
Congress passed a sweeping spending bill this morning that boosts discretionary spending by $300 billion and provides $90 billion in disaster relief. The Bipartisan Budget Act would boost the deficit by $320 billion over the next 10 years, with the budget shortfall breaching the symbolic $1 trillion-mark next year - the largest deficit since the Great Recession.