Us Economy Enters Softer Patch Essay

1726 Words Oct 12th, 2015 7 Pages
US Economy Enters Softer Patch
The deceleration in US job creation over the past 2 months has caused a commotion in financial markets. US equities have been buoyant since the release of September’s labour market data, while the bond market has downgraded the probability of the Federal Open Market Committee (FOMC) raising its policy rate at its December meeting. The apparent onset of weaker non-farm payroll growth has also impacted investors’ views of the subsequent trajectory of policy normalisation. It appears now that only 2 increases in the federal funds target by the end of 2016 have been priced into expectations. Financial markets are, therefore, deeming that a slowdown in US economic activity is in place, and that it is sufficiently large enough to force the Fed to slow their planned normalisation of policy. Labour market data is, however, notoriously volatile and can be subject to significant revisions. What the Fed is keen to avoid is being duped into a more dovish stance that may subsequently have to be revoked. Thus, an accurate and broad-based assessment of any economic slowdown in place since June is required.
The Federal Reserve Bank of Atlanta produces regular updates of estimates for real GDP via its GDPNow Model. Currently, Q3 growth is estimated to be running at +1.1%. This compares to just below +2.5% for the Blue Chip Consensus survey, which has been reduced by -0.7% over the course of the summer. Presumably, the fears about China’s slowdown have impacted…

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