Many new monetary policy tools such as outright bond purchases are untested over the long run and may have uncertain effects. Under conditions of higher than expected growth with unhinged inflation expectations, monetary policy would shift suddenly. An early tightening would raise long-term funding costs through higher interest rates and wider spreads. Equity markets would react negatively to the policy shift and higher mortgage rates would slow residential investment. Internationally, a rapid increase in interest rates would widen emerging market bond spreads, increase volatility and raise the chance of credit downgrades. Capital flows previously attuned to a flood of liquidity from central banks may reverse, causing further negative secondary effects We capture these dynamics in our Global Macroeconomic Model and assume that higher than expected consumption and investment in the US would accelerate GDP towards 4.5% in 2014 before aggressive Federal Reserve action to combat inflation expectations. The impact is a deceleration to 0.6% growth in 2015 and recession in 2016. Eurozone growth would rise to 1.7% in 2014 before slowing to sub-1.0% growth in 2016 as financial and trade linkages begin to bite. After 4.0% in 2013, world GDP growth, on a PPP basis, would rise to 4.9% in 2014 and then slow to around 3.0% in 2016.
US Weekly Economic Briefing: The following represents a general Table of Contents outline for the US Weekly Economic Briefing. The actual report may cover any or all of the topics listed below.
US Weekly Economic Briefings
1. Highlights: Briefing on events-driven analysis for the week, which varies depending upon data.
2. Credit Crunch Watch:
Financial Stress and Monetary Conditions Indicators, along with discussion of their latest movements. Brief discussion of latest trends in the US and Eurozone economies.
Detailed charts of the components of the Financial Stress and Monetary Conditions Indicators.
Credit Crunch Timeline: Summary of major economic events since the beginning of the financial crisis.
3. Latest Data in Detail: Charts and analysis on the important releases of the previous week, such as: inflation indicators, consumer confidence, retail sales, durable goods orders etc.
4. The Week Ahead: Scheduled key data releases for the upcoming week, including information on previous data and forecast data.
5. Key Economic Indicators: The previous yearâ€™s monthly data for a number of key macroeconomic indicators, including the unemployment rate, output, retail sales, inflation, and trade balance.
6. Key Financial Indicators: The previous yearâ€™s monthly data for a number of key financial indicators including: Short and long term interest rates, key exchange rates, money supply, S&P 500, and reserves.