Economic Commentaries

Entries for April 2016

08

G-20 finance ministers met last week with little fanfare and little accomplishment. The ministerial communiqué alluded to a growing ineffectiveness of monetary policy while tilting toward the need for coordinated fiscal policy. China was the host country and it intimated that it would boost fiscal spending. Otherwise there was no joint action plan. Finally, G-20 denounced competitive devaluation as a means of boosting exports and growth.

For most countries fiscal policy will remain in a straitjacket near term so monetary policy will still be in focus. With deflation accelerating in Europe the central bank is likely to ease further. With anemic growth in the U.S. and the dollar remaining strong the Federal Reserve is likely to ease by deferring an interest rate increase while modifying its timetable for future increases.

In the current quarter U.S. real GDP growth appears to be running at a 1.5%-2% annual rate as consumption and construction benefit from favorable fundamentals and good weather. But inventories and trade will be drags and business investment remains anemic. Some activity may be being stolen from the spring as well so we have little expectation for any acceleration.

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