Key Takeaways:
- The U.S. Federal Reserve on Wednesday raised its U.S. GDP growth projection to 2.1% for 2024, up from 1.4% in its December outlook, as the economy continues to display resilience.
- But the labor market has remained relatively hot and January and February inflation prints dampened hopes that price increases were fully under control.
- “I think one thing that was really underestimated in the U.S. was the immigration story,” Joyce Chang, chair of global research at JPMorgan, told CNBC on Thursday.
Joyce Chang, chair of global research at JPMorgan, highlighted the significant role of immigration in the recent surge in the U.S. economy. Despite facing numerous global challenges, including high interest rates as the central bank addresses inflation concerns, the economy has displayed resilience. The U.S. Federal Reserve recently revised its GDP growth projection for 2024, increasing it to 2.1% from 1.4% projected in December.
Despite tighter monetary conditions, the labor market has remained robust, with unemployment staying below 4% in February and the economy adding 275,000 jobs. Additionally, the Fed raised its projections for core personal consumption expenditure (PCE) inflation, expecting it to reach 2.6%, up from 2.4%.
However, January and February inflation data tempered optimism about fully controlling price increases. The core consumer price index, excluding volatile food and energy prices, rose 0.4% in February from the previous month and was up 3.8% year-on-year, slightly surpassing forecasts.
Chang emphasized that services inflation globally remains elevated compared to pre-pandemic levels, with core CPI reaching around 3%. She underscored the underestimated impact of immigration in the U.S., noting that the population has increased by nearly 6 million in the past two years. This influx has contributed significantly to consumption growth, alongside the low unemployment figures.
Joyce Chang highlighted the ongoing challenges related to inflation, noting that factors such as upward pressure on wages, housing costs, and a resurgence in energy prices indicate that the Federal Reserve still faces inflationary pressures.
According to a recent Congressional Budget Office report, net immigration to the U.S. was estimated at 3.3 million in 2023 and is projected to remain at that level in 2024, before gradually decreasing to 2.6 million in 2025 and 1.8 million in 2026. Immigration, particularly concerning border crossings, has become a prominent topic ahead of the November presidential election, with events such as the situation in Haiti potentially exacerbating the issue.
However, Chang emphasized that despite its political implications, immigration has a positive net impact on the economy. She stated that the revenues generated from immigration exceed the associated expenses, contributing to factors such as low unemployment rates and strong consumption.
Additionally, Chang pointed out that other factors, such as the high fiscal deficit and energy independence, have enabled the U.S. economy to outperform its peers. In contrast, Europe has faced challenges in reducing its reliance on Russia for energy supply.
The Congressional Budget Office projects that the U.S. federal budget deficit will continue to widen, reaching $1.4 trillion in 2023 and expanding to 6.1% of GDP in both 2024 and 2025. Chang anticipates increased government spending, particularly in an election year, suggesting that inflationary pressures are likely to persist.
Given these factors, JPMorgan expects the Federal Reserve to implement only a “shallow” loosening cycle, as inflationary pressures persist amid high government spending and immigration trends.