Weekly Economic Insights - 25 March 2019

Macro Highlights - 3/25/2019

Highlights of the week

Economist insights: A more dovish Fed than expected, sharp drop in the eurozone manufacturing PMI

US Federal Reserve

  • The Fed members made significant downward revisions to their projections for the Fed funds rate and now expect it to remain at its current level of 2.50% in 2019...
  • … while the Fed unveiled the details of the end of its balance sheet reduction earlier than expected, which notably include a return to net purchases of Treasuries from next October
  • The Fed thus reinforces its management of the US yield curve, which could contribute to contain volatility and risk premiums, thereby supporting GDP growth


    • The manufacturing PMI dropped sharply in March, which tends to indicate a further slowdown in GDP growth in Q1 2019
    • Weak GDP growth should encourage the ECB to maintain its cautious stance and extend its accommodative monetary policy…
    • … which could further reinforce the downward pressure on sovereign yields in the eurozone, especially German yields

Focus US: The main driver of the US economy, household consumption, could accelerate

  • While consumption growth stagnated in 2018 and could still be weak in the first part of 2019, we anticipate that it could strengthen over the coming months
  • Weak inflation, at 1.5% in February 2019, and the continued moderate acceleration in nominal wages, are set to boost household purchasing power this year
  • Moreover, the market rebound at the start of 2019 should lead household wealth to rise again and the high savings rate and confidence levels offer upwards potential in terms of consumer spending
  • Risks nevertheless remain. If trade tariffs of 25% are applied to vehicle imports, inflation could rise by up to 0.2 percentage point


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