Pulling It All Together/Appendix
The Economy…
AIER is proud to introduce our updated Business-Cycle Conditions model. We are confident that the enhancements we have made will improve the accuracy and usefulness of the model while remaining true to the long history of business-cycle research at AIER.
The latest reading from our new model is little changed from the previous reading using the old model. The new model suggests a moderate growth outlook and relatively low risk of recession in the months ahead, as did the old model.
Capital spending appears weak in aggregate, but much of the weakness comes from energy and agricultural industries, reflecting lower commodity prices. Excluding these areas, business investment remains healthy.
…Inflation…
Our Inflationary Pressures Scorecard points to receding pressures and a benign inflation outlook. Recent trends remain in place: food, energy, and core-goods prices remain very weak while price increases continue in core services, primarily housing, medical care, and education.
…Policy…
The Fed began a new credit-tightening cycle in December, lifting the federal funds target rate by 25 basis points in its first increase since June 2006. We maintain our view that the more important aspects of monetary policy will be the pace of subsequent increases and the eventual stopping point. The updated longer-run projections by members of the Fed’s policy-making committee are little changed from the previous quarter but show a significant downward trend since 2012.
The Fed began a new credit-tightening cycle in December, lifting the federal funds target rate by 25 basis points in its first increase since June 2006. We maintain our view that the more important aspects of monetary policy will be the pace of subsequent increases and the eventual stopping point. The updated longer-run projections by members of the Fed’s policy-making committee are little changed from the previous quarter but show a significant downward trend since 2012.
A year-end tax bill passed by Congress and signed into law by President Obama will make permanent a series of tax cuts that had been subject to annual extensions. The most notable piece missing from the legislation was any offsetting spending cuts or revenue raisers, meaning that the law—while helping many families—will continue to expand the federal budget deficit.
…Investing
Fed tightening, a strong dollar, and slackening global demand are contributing to continued weakness in commodity prices. That weakness is reflected in the performance of energy and agricultural-products companies, in the U.S. and globally.
In an environment of rising interest rates, shorter-term fixed income investments are likely to outperform longer-term bonds.
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6. Pulling It All Together/Appendix
AIER Staff
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