US resilience helped by loose fiscal policy
The US budget is still deep in the red this far into the economic recovery.
US economic resilience has been helped by large budget deficits.
In his final parliamentary testimony last week, RBA Governor Lowe remarked,
"I go to a lot of international meetings of central bank governors, and the two words I hear most frequently are 'persistence' and 'resilience'. I hear about persistence of services price inflation. I talked about that in Australia, but it's the same in most other advanced economies. And the other word is 'resilience'—the resilience of the labour market. Our unemployment rate is the lowest since the early seventies. I think in the US it's the lowest since the late sixties. Many countries have had very significant reductions in unemployment and have strong labour markets. That's the combination we're dealing with: persistent services price inflation and low unemployment."
One reason for the resilience of many advanced economies appears to be the ability of consumers to draw on substantial excess savings built up during the pandemic, although on CCI's calculation US households will largely exhaust their buffers by late this year.
However, in the US there is still what seems to be a significant stimulus from fiscal policy, where the budget remains significantly in the red, with the trend in the deficit holding at around 8% of GDP early this year
There is no unique way of measuring the economic effect of fiscal policy, but a very crude way of demonstrating how the US budget remains stimulatory is that the extremely low unemployment rate of about 3½% would normally suggest that the budget should be closer to balance.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
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