According to the publication released this week from BBVA Research, U.S. Macroeconomic Pulse for January 2020, the current baseline assumes growth of 1.8% in 2020, with a potential upside emerging. The paper further notes that model-based recession projections suggest probability around 30% over the next 24-months.
Moderate job growth and steady unemployment is expected to continue for foreseeable future with inflation close to 2% and downside risks fading. The paper continues that the Fed is likely to pause indefinitely as the committee evaluates the impact of increased accommodation and monitors risks.
The paper’s author, BBVA senior economist Boyd Nash-Stacey, noted the yield curve is steepening with improvement in term premium, due to the Fed fine-tuning along with rising inflation expectations. Additionally, oil price outlooks were underpinned by weak demand growth in a well supplied market.
Nash-Stacey added that recent indicators suggest a potential rebound in industrial output; however, pressures in the aircraft industry could intensify. Solid labor market conditions, real income growth, low borrowing costs and high consumer confidence continue supporting private consumption. In addition, momentum continues to build in the residential sector, supported by lower mortgage rates. The probability of recession at its lowest level since 2018.
For more details, read the full report here.
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