- Pioneer Investments has revised its 2014 growth forecast for the US economy to 2.0%, and 2.7% for 2015
- Turning point in inflation has been reached and they now see CPI moving above 2% YoY in the coming quarters.
- Interest rates could then start to slowly rise during 2015
Pioneer Investments has published a forecast update for the US economy, revising growth and inflation upwards. Tapering would be definitely over by October and interest rates should start to rise in 2015. The report is signed by Monica Defend Head of Global Asset Allocation Research, and Annalisa Usardi, Economist, US & LATAM Global Asset Allocation Research. The main highlights of the revised forecast are:
- Growth: Pioneer Investments has revised its 2014 growth forecast to 2.0% based on the Bureau of Economic Analysis July 30th data release, which encompasses the advance estimate of 2Q GDP14, together with a revision of the GDP and underlying expenditure components. They also revised upward their growth expectations for 2015, to 2.7%. While 2014 will again be a sub-par growth year for the US, Pioneer Investments expects growth for 2015 to be above par, helping to close the output gap that opened with the “Great Recession”.
- Inflation: Pioneer Investments believe the turning point in inflation has been reached and they now see CPI moving above 2% YoY in the coming quarters. The asset manager has revised upward both their forecasts for 2014 (CPI now at 2% YoY) and 2015 (CPI now at 2.3% YoY). Given the revisions in Wages and Unit Labor Costs, it expects CPI inflation to move modestly above the 2% level, but is not expecting dramatic upward pressure to build. Inflation expectations remain well behaved and Personal Consumption Expenditures (PCE) inflation is still below the 2% level.
- Federal Reserve: The next scheduled Fed meeting is on September 17. Quantitative easing (QE) is likely to continue to be “tapered” going forward as announced and completely wound down by October 2014. Interest rates could then start to slowly rise during 2015. Pioneer Investments currently assumes that the Fed will start increasing rates during 2015 (fed fund futures currently expect rates to start to rise above 0.25% in the summer of 2015).
- Stronger-than-expected global growth and trade, resulting in higher demand for U.S. exports, could lift confidence and add to internal demand drivers to lift growth.
- Improvements in consumer balance sheets, coupled with stable income growth and anchored inflation expectations, could trigger higher confidence and support more sustained patterns of consumption than we currently envisage.
- Improving business sentiment underpinned by accelerating and external sales and coupled with capacity utilization levels higher than we currently estimate could support further acceleration in capital expenditures.
- A significantly stronger dollar might adversely impact the export sector by making U.S.-produced goods and services more expensive in foreign markets.
- After the multi-year forced deleveraging, the U.S. consumer might be more reluctant to re-leverage notwithstanding a better balance sheet, and this change in attitude might subtract steam from growth.
- A faltering real estate recovery could lead to lower growth prospects.
- Renewed geopolitical tensions, involving directly or indirectly the U.S., could be highly disruptive for the flow of oil and for financial markets in general.
- Mid-term elections results this fall could disrupt the smooth progress of political activity and represent a risk for business stability and consumer confidence.