April 16, 2019
On April 10, the French-American Foundation welcomed Gregory Daco, Chief US Economist at Oxford Economics, to talk about the US economy. Below is a synopsis of his discussion on a potential recession:
The combination of global headwinds, weak domestic activity in Q1, and an extreme dovish pivot by the Fed have brought back recession fears. However, while the yield curve temporarily inverted for the first time since 2008, Gregory Daco believes this recession bias is misguided. Economic momentum is slowing due to reduced fiscal stimulus, tighter monetary policy, subdued global activity, and lingering trade tensions, but the US economy should still post a respectable 2.3% advance in 2019. Elevated private sector confidence, a solid labor market, and looser-than-expected Fed policy should prevent a hard landing this year.
Gregory Daco sees the US and China nearing a trade agreement which would feature promises by China to import more goods from the US, allow greater access to its market, and enforce intellectual property rights. He highlights that a trade agreement would provide a welcome boost to private sector confidence and trade flows globally, but logistical, ideological, and strategic hurdles mean the risk of a short-lived trade truce is real.
Gregory Daco believes inflation will continue to undershoot the Fed’s 2% target reflecting weakening growth dynamics, a more subdued wage-unemployment trade-off, globalization, corporate concentration, and increasingly low and anchored inflation expectations. As such, he believes the Fed has reached its terminal policy rate, at 2.50%, for this business cycle.
The Transatlantic Forum in New York City is a monthly opportunity for members to discuss topical issues with subject matter experts.