What is likely to affect the US economic activity in the near term?
© David Sloan
I suppose that the US economy is on a fairly solid and steady growth path at the moment. I think that there are no serious policy errors and the economy will continue to show steady performance in the near term. However, possible policy errors would be an upturning protectionist action and probably the ending of the NAFTA, while tax measures would make a positive contribution to the economy. Nevertheless, I do not think the economic impact of the latter would be as strong as some people hope; there would be a moderate support and sustaining recovery rather than a strong boost.
Do you see the current state of the US economy as appropriate for the Fed's next rate increase?
I believe that the economy is strong enough to justify further rate increases. It is certainly the case that inflation has been low, though our view is that inflation will grip slowly higher in the next year, which would make interest rate increases appropriate. However, I do not think that risks from not tightening would be massive. In my mind, the economy will continue to do fine whether they tighten or not, but I feel that the economy is strong enough to justify the gradual pace of tightening.
Do you expect the Federal Reserve's program of monetary policy normalisation to be successful or not? What results to await?
I support the idea that the policy will be successful as the Fed is being appropriately cautious. I think, if inflation continues to disappoint in 2018, the Federal Reserve will probably tighten by less than they currently expect. Our view is that the Fed's forecast will probably be broadly accurate and they will move in line with their current projections, but I think the Fed policy, as they are currently operating, will help sustain the steady recovery.
In your opinion, what changes could the new Fed chair implement?
I think it is unlikely that Powell is going to be a major shift from Yellen. We do have to see the other vacancies at the Fed and what type of people the President Trump appoints there. It is possible that the Federal Reserve could take on a slightly more hawkish leaning than it had in the past. Yellen has a reputation of being very dovish, despite the fact that she has been less dovish recently. Even if there is a slight hawkish shift, it is probably not going to be a major shift from the way Yellen has acted over the last twelve months or so.