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Cool Video: Bloomberg Discussion of Late US Cycle

 

An assessment of the US economy is an important input into the expectations of the dollar’s behavior in the foreign exchange market. As a currency strategist, my views of the US economy are often subsumed in discussions or talked about indirectly by talking about Fed policy.  However, in this clip with Alix Steel and David Westin, I have an opportunity to sketch outlook for the US economy. 

I agree with those that do not see a recession imminent.  However, I do see late-cycle evidence accumulating.  Interest-rate sensitive sectors, like housing and auto sales, already seem to be slowing.  Also, I note that a 12-month moving average of non-farm payrolls peaks in the middle of the cycle and it peaked in 2015.   One does not have to take a rigid stance on the predictive power of the yield curve to note that its flatness is also something seen at the ending phasing of a business cycle.  The rise in oil prices also typically happens late in the cycle.

There is still fiscal stimulus that is working its way through the economy, and a bit more is in the pipeline.  However, I suspect the US growth peaked in Q2 a little above 4%, and while the economy is growing above trend now, growth may slow sufficiently to allow the Fed to pause in the middle of next year, after hiking rates three more times.  Peak divergence still lies ahead.

 

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Marc Chandler
He is Global Head of Currency Strategy of Brown Brothers Harriman (BBH). He has been covering the global capital markets in one fashion or another for 25 years, working at economic consulting firms and global investment banks. He regularly appears on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. BBH provides specialist services and innovative solutions to many Swiss asset managers that include a global custody network of close to 100 markets, accounting, administration, securities lending, foreign exchange, cash management and brokerage services. Feel free to contact the Zurich office of BBH
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