The US, and the global economy in general should see faster growth over the second half of the year alleviating some of the current concerns. Certainly, this has been the case in the eurozone as inflation expectations have risen along with growth estimates. The growth outlook naturally leads to a conversation on rates and whether the pace of growth is enough to see inflation move higher and the unemployment rate lower and achieve the US Federal Reserve’s dual mandate of full employment and inflation of close to 2 per cent. I think there is, and that the Fed will continue to make noises on higher rates this year. And as the data turns, this rhetoric will increase. June may now be too soon, but, waiting too long to set off on the path to normalisation could be just as detrimental if it casts doubt on the financial stability of markets.
Finally, this could all come down to inaccurate measurement. Most economic data is seasonally adjusted to give a better reflection of underlying trends and account for factors that can distort data. Some economists are beginning to question how seasonality is affecting the gross domestic product figures, on the suspicion that the decline in first-quarter economic growth for the US in the past few years may be more than just a coincidence. Most recently, the Federal Reserve Bank of San Francisco published a paper discounting the official growth statistics and argued that the “real” number may have been closer to 1.8 per cent. The US economy may be on softer ground, but it is not yet stuck in the mud.
Kerry Craig is global market strategist of JP Morgan Asset Management
