• The United States Economy and Politics in 2019

    27 Dec 2018 | Economic News
 

The US economy should continue its strong performance in the first half of 2019. The domestic economy is robust enough, particularly the labor and consumer sectors to roll through June on momentum alone. In the second half of the year the impact of the global economic environment could begin to tell. The US economy can probably weather a serious slowdown in China or an EU recession alone without losing much in GDP expansion, but together they would seriously impact growth.

The Fed reduction in its 2019 rate increases from three to two in the December projections aknowledges the uncertainty created by Brexit, China and declining global economic growth. With these risks to the global economy unsettled, caution came to FOMC along with dependency. When the threats to growth from Brexit and Europe subside and trade with China is mediated the second half of the year could see a pickup in gobal and US growth and a resumption of  Fed tightening.

The dollar will retain moderate strength in the first half of the year despite the Fed's tactical retreat on rates. Safe haven flows and negative pressure on the sterling and euro with episodes of volatility will continue to aid the US currency as long as the manner of the British exit from the EU is undecided. In the second half the dollar will fade as the worst fears for Brexit do not come to pass leading to a recovery in the euro and sterling. A US-China trade deal will revive risk markets and drain dollar strength. 

The trade dispute between the US and China is the key to global economic performance in 2019. Together, the US and China can power global growth even if the EU and Britain fall into recession.  If that relationship can be restored to pre-dispute activity and eliminated as a drag on real growth and a psychological drag on markets then the all may be relatively well.  


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