US: Economy strengthening – Westpac

Elliot Clarke, Research Analyst at Westpac, suggests that the strength of the US economy is set to justify four hikes by the FOMC to June 2019, but equally the risks thereafter.

Key Quotes

“Despite very strong employment growth and a much-improved financial position, US consumers are hesitant to spend. Indeed, in 2018-to-date, they have actually throttled back on discretionary consumption and reduced housing investment.”

“Also a clear risk to aggregate growth is business investment. So far trade tensions have offset the would-have-been benefit of President Trump’s stimulus. But, if uncertainty persists, then investment could become an outright negative for the US economy.”

“If we are correct and US growth falls back to trend in 2019, the upswing seen in the US dollar this year will reverse course from Q2 2019, benefitting currencies as diverse as the Euro, Yen and Renminbi. Buffeted by declining commodity prices, the Australian dollar is instead expected to continue falling to around USD0.70 by end-2019.”