Economic & Financial Forecast September 2024 Steve

Transcript:Economic & Financial Forecast September 2024 Steve:
Economic & Financial Forecast September 2024 Steve Ricchiuto, Chief U.S. Economist steven.ricchiuto@mizuhogroup.com 212-209-9432 Mizuho Securities USA LLC Inflationary considerations: THE POST COVID-19 PROBLEM SUMMARY Inflationary Considerations: Massive Covid-19 stimulus. Aggressive monetary accommodation. Rapid business cycle recovery. Tight labor market conditions. Commodity prices remain elevated. Fiscal policy still expansionary. Output Gaps eliminated. Fed stepping back from it’s 2% target. Massive fiscal stimulus undertaken in 2020-2021. Direct cash payments to individuals big part of the 2020-2021 stimulus. Although excess savings are depleted households far from strapped. Fed monetized the debt and despite QT the system is still flush with liquidity. New normal period was the anomaly. Labor market tight by most measures. Job openings still well above pre-Covid level even as new hiring has slowed. Employment remains well below its pre-pandemic trend. Population downtrend remains a long-term growth concern. Skilled labor shortage is real but correctable with time. Commodity prices remain above their Pre-Covid levels. Fiscal policy still adding to growth despite no new legislation. Domestic cyclical inflation pressure. Headed back to global excess capacity. Fed wants to cut rate even with inflation above 2%. DISInflationary considerations: MORE TRANSITORY THAN PERMANENT SUMMARY Disinflation Considerations: Fed’s aggressive rate hikes. Currency uptrend still intact. Household purchasing power eroded. Consumers spending back to trend. Supply chain refilled. Fed has inverted the coupon curve. Fed tightening partially offset by rate cut expectations. Importing global deflation supported by a strong dollar. Inflation eroded household purchasing power. Consumer spending solidly on pre-Covid trend. Supply chain issues less of concern. Supply chain issues less of concern. Supply chains refilled. Curve Inversion not leading to a credit crunch. Fed induced disintermediation causes a credit squeeze not a crunch. EXCESS SUPPLY: LONG-TERM DEFLATIONARY FORCES SUMMARY Long-Run Deflation Dynamics: Global current account surplus. Robust global trade. Accumulated debt headwind. Aging population. Reduced union involvement. Debt overhang headwind. Reduced fiscal multiplier. CEOs still paid on shareholder value. Excess supply driving in global current account surplus. Excess supply supported by robust global trade. Demographics set upper limit on domestic demand. Decline in union membership should dampen inflation. Accumulated debt set upside limit on sustainable growth. Debt at 250% of GDP dampens effectiveness of fiscal stimulus. Bond markets taking inflation risk seriously. Companies remain focused on double digit earnings growth. DISCLAIMER General Disclaimers The information and analysis (collectively, the “Information”) contained in this publication is being provided to you solely for informational purposes. The Information