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Macroeconomics analysis Act. 26 Jun 2018

BBVA Research sees positive scenario for U.S. economy

The main indicators show the U.S. economy has performed well in the year so far, with a rise in Gross Domestic Product (GDP), employment and wages as well as higher exports.

In its most recent United States Economic Outlook report published in June 2018, BBVA Research has revised its GDP scenario from moderate to high growth also accompanied by higher inflation for 2018 and 2019. Likewise, it expects two further rate hikes this year by the Federal Reserve and three in 2019 alongside higher-than-average job creation leading to a fall in the unemployment rate to 3.6 percent in 2019.

According to the report, consumption and industrial activity are expected to remain buoyant as will be the case for exports. As a result, it is maintaining its economic growth forecast for 2018 and 2019 at 2.8 percent.

The favorable performance of the economy has translated into an across-the-board increase in employment covering agriculture, manufacturing and the services sector leading to a fall in the unemployment rate to 3.8 percent, the lowest in 58 years, also helped by a drop in the labor force participation rate. It expects employment to continue to expand above average and for the jobless rate to fall to 3.6 percent the next year.

BBVA Research expects ongoing tailwinds from fiscal expansion policy to push inflation higher over the next few years and forecast the Consumer Price Index (CPI) to come in at 2.7 percent both in 2018 and 2019 before gradually moderating from 2020.

The CPI has been impacted by higher services prices, particularly for energy, which have increased 10 percent in the past 12 months.

Consumption and industrial activity are expected to remain buoyant as will be the case for exports

Restrictive monetary policy

This year has seen a shift in the Federal Reserve’s monetary policy with rate hikes. BBVA Research expects a continuation of the same with gradual increases in short-term rates.

BBVA Research believes the risk of three rate increases in 2019 remains likely and maintained its baseline scenario for two more hikes this year with inflationary expectations remaining the main driving force behind the increases.

As a result, the report points to an increase in rates to 2.50 percent by the end of 2018 and a further rise to 3.0 percent in 2019, at which level they are expected to remain until at least 2022.

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