- The U. S. Federal Reserve on Wednesday raised its U. S. GDP growth projection to 2.1 % for 2024, up from 1.4 % in its December outlook, as the economy continues to display resilience.
- But the labour market has remained fairly warm and January and February prices images dampened hope that value increases were fully under control.
- ” I think one item that was really underestimated in the U. S. was the immigration account”, Joyce Chang, head of international studies at JPMorgan, told CNBC on Thursday.
The U. S. Federal Reserve on Wednesday raised its U. S. GDP growth projection to 2.1 % for 2024, up from 1.4 % in its December outlook, as the economy continues to display resilience despite high interest rates as the central bank seeks to manage inflation levels.
Meanwhile, the labor market has stayed relatively hot despite tighter monetary conditions, with unemployment remaining below 4 % in February and the economy adding 275, 000 jobs.
The Fed even raised its forecasts for its preferred measure of prices: core personal consumption expenses. It now expects the core PCE to come in at 2.6 %, up from 2.4 %, after January and February inflation prints dampened hopes that price increases were fully under control.
The core consumer price index, which excludes volatile food and energy prices, rose 0.4 % in February on the month and was up 3.8 % on the year, slightly higher than forecast.
” We are still seeing the events around the globe that service inflation is still well above where it was before the crisis, so we’re looking at 3 % for core CPI, but I think one thing that was really underestimated in the U. S. was the immigration account”, Chang told CNBC’s” Squawk Box Europe” on Thursday.
” The U. S. population is about 6 million higher than it was two years ago or thus, and so that has accounted for a lot of the increase in consumption, when you see the extremely low unemployment figures as well”.
She noted that higher pressure on wages and accommodation costs, along with a rise in energy costs so far this year, suggest that the Fed is” not out of the trees but” when it comes to prices.
A new Congressional Budget Office document estimated that online immigration to the U. S. was 3.3 million in 2023 and is projected to be at that stage in 2024, before dropping to 2.6 million in 2025 and 1.8 million in 2026.
Immigration, and especially border bridges, is among the hottest issues in the work- up to the November presidential election. Chang suggested that additional events could compound the issue, especially the unfolding scenario in Haiti.
Nevertheless, she argued that in terms of online impact on the economy, immigration is” a fine thing”.
” From everything that we have seen, the income that are generated exceed the costs. Now it is a social problem, not just here in the U. S. but you look at Europe, it’s even perhaps the No. 1 matter right now, but we do believe that when you look at the unemployment figures, the strength of use, the emigration was a major part of that”, Chang said.
Other factors that have enabled the U. S. economy to outperform its peers include its high fiscal deficit and its energy independence, Chang added. Europe has struggled in recent years to eradicate its reliance on Russia for energy supply.
Meanwhile, the Congressional Budget Office projects that the U. S. federal budget deficit totaled$ 1.4 trillion in 2023, or 5.3 % of GDP, which will swell to 6.1 % of GDP in 2024 and 2025.
” I think that also in an election year you’re going to see a lot of spending before Sept. 30 as well, so there are n’t really many signs that those numbers]will subside]. I think that’s one reason why I do think that higher for longer will be here to stay”, Chang added. Sept. 30 is the end of the U. S. government’s fiscal year.
With this in mind, JPMorgan sees only a” shallow” loosening cycle from the Federal Reserve, with inflationary pressures set to persist against the backdrop of high government spending and immigration.
