US consumer and business sentiment have fallen significantly in response to elevated policy uncertainty, with some indicators pointing to higher recession risks.
Luke Bartholomew speaks to James McCann about the sudden deterioration in economic sentiment and how reliable this is as guide to future growth.
They also discuss the current state of play on tariff policy, the impact of DOGE on the US job market and how interest rates might move in response to the various shocks hitting the economy.
Some highlights:
They also discuss the current state of play on tariff policy, the impact of DOGE on the US job market and how interest rates might move in response to the various shocks hitting the economy.
Some highlights:
- Policy uncertainty and economic sentiment. The initial optimism following the Republican clean sweep last November has given way to disappointment, as the Trump administration's focus on trade policy and federal spending cuts has dampened sentiment.
- Sentiment data vs hard data. We delve into the reliability of sentiment data as an indicator of current economic conditions and highlight the partisan divide in reported sentiment and the potential disconnect between sentiment and actual economic performance. The recent weakness in hard data, such as consumer spending and business investment, is also analysed.
- Atlanta Fed nowcast and GDP. The Atlanta Fed's nowcast points towards a steep annualised contraction in Q1 growth. We discuss the factors contributing to this, including trade deficits and inventory buildups, and the potential for a moderation in consumer spending.
- Trade policy and tariffs. Trump's trade policy, including the rapid increase in tariffs on China and other trade partners, is a key focus. The volatility in tariff rates and the potential impact on the US economy are explored, along with the reasons behind the temporary rollback of some tariffs.
- Impact of tariffs on the economy. We discuss the economic impact of tariffs, including the negative supply shock they represent and their effects on growth and inflation. We look at the factors that may affect the impact of tariffs, such as market structure, currency movements and financial conditions.
- Department of Government Efficiency (DOGE). We analyse the impact of DOGE on federal employment and the broader US economy, including potential job losses and the knock-on effects on consumer spending.
- Federal Reserve. What are the market's expectations for monetary easing and rate cuts from the Federal Reserve in response to economic shocks? We discuss the Fed's potential reaction to negative supply shocks and the balance between its employment and inflation mandates.
Listen to the latest episode of our Macro Bytes podcast for further insights.