Economy News

White House raises fourth quarter inflation forecast


White House raised its fourth quarter inflation forecast, doubling its May forecast. In spite of this, it aligned itself with the expectations of other government agencies and independent research institutes.

According to the Wall Street Journal (WSJ), the White House Office of Budget and Management (OMB) reported on the 27th (local time) that the consumer price index (CPI) rose 4.8 percent in the fourth quarter of this year, 2 percent higher than the 2 percent forecast in May. is expected to outpace the ship.

Inflation should continue to be pressured by supply chain disruptions resulting from the emerging Covid-19 pandemic.

OMB, however, expects inflation to rise through the end of the year, but will ease sharply beginning next year.

In the fourth quarter of next year, OMB expects the CPI to rise 2.5 percent. This is 0.4 percentage points higher than the 2.1 percent estimate made in May.

In 2023, CPI growth is expected to decline to 2.3 percent.

The May forecast was significantly higher than OMB’s, but the inflation projections for this year and beyond are not much different from those of the Federal Reserve (Fed) and other independent agencies.

The OMB inflation outlook indicates that inflationary pressures will gradually weaken, but will remain high for some time.

The Fed’s preferred Personal Consumption Expenditures (PCE) price index reflects this.

The PCE price index increased 0.4 percent from a year earlier in July, down from 0.5 percent in June. In contrast, it was up 4.2 percent from a year ago.

As part of his speech at the Bank of Kansas City’s Jackson Hole virtual meeting on Wednesday, Jerome Powell said that inflationary pressures would ease.

“A precipitous tightening of monetary policy would drown economic growth”, Powell explained.

Powell notes that used car prices, which have risen sharply and led overall inflation, are stabilizing. Upon stabilization of the pandemic, the supply chain, which has kept global prices low for the past 30 years, will return to normal and inflationary pressures will subside. It will be relieved, he said.

According to him, there is a relatively small variety of products that are driving up prices at the moment.

Powell also raised the three major indices on the New York Stock Exchange, noting that while he will likely to reduce his bond purchases later this year, rate hikes are still a thing of the past.

Furthermore, the OMB also raised its GDP growth forecast for this year to 7.2 percent, 2.2 percentage points higher than its May forecast. In response to the immunization program and the return to normal life, economic activity grew rapidly.

As a result of the high growth outlook, the budget deficit forecast has been revised downward.

OMB lowered this year’s budget deficit to $3.1 trillion, $600 billion less than the $3.7 trillion it had forecast in May. This was in line with the expectation of higher tax revenues due to strong economic growth.

At the same time, the budget deficit-to-GDP ratio was reduced from 16.7 percent to 13.9 percent.

For MetaNews.


Jonathan Hobbs

Jonathan Hobbs is an Australian investor and author that trades on a variety of asset classes, including currencies, equities, and commodities. Jonathan’s experience as a macro trader leverages his unique writing style to combine important elements, such as technical analysis and news. The other elements that he brings into his unique writing styles are foundation analysis aimed at rational equilibrium values, evaluating the sizes and motivations of buyers and sellers, as well as identifying the needs of the buyers and sellers in the individual markets. Jonathan is committed to quality writing for new traders as well as veterans.

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