Mid-year Outlook: U.S. Growth Continues to be Modestly Positive, as Global Growth Improves
By Jason Schenker, Prestige Economics, LLC
The second half of 2015 is likely to be characterized by a solid U.S. economy, an improving global economy, modestly increasing commodity prices and continued foreign exchange rate volatility.
Despite the deceleration in U.S. growth in Q4 2014 and Q1 2015, we still expect solid year-over-year U.S. economic growth for all of 2015, as well as continued improvements in the U.S. labor market, including additional job creation, rising wages and a falling unemployment rate.
The second half of 2015 should also be good for material handling industries. After all, a number of foreign central banks implemented unprecedented accommodative monetary policies in Q1. Unfortunately, most stimulative monetary policies engender growth on a lag, but in the second half of 2015, these policies will begin to engender growth.
Expectations for the Fed
In light of an improving domestic labor market, the Fed is poised to gradually tighten U.S. monetary policy. Nevertheless, we expect only modest rate hikes in 2015, representing a very gradual, measured economic dependent Fed policy. We still fundamentally believe that growth will continue to improve domestically, and rate hikes will be modest. As such, we see at least two years of solid U.S. growth ahead.
Abroad, the outlook for central banks is very dovish, and accommodative policies have been enacted by central banks the world over. To ensure continued global improvements, we expect most foreign central banks will remain highly accommodative in the second half of 2015, while the Fed gradually removes accommodation. As the U.S. and global economy improve, we expect more aggressive Fed Funds Rate targets in 2016 and 2017. We also believe that expectations of less accommodative global central bank policies in 2016 and 2017 will begin to affect foreign exchange markets, by supporting foreign currencies against the greenback.