The latest inflation data in the US were greeted by financial markets because inflation declined more than expected. However, upon closer inspection, the picture is mixed. On the one hand, there is mounting evidence of disinflation (easing of input price pressures, shorter delivery times, decline of goods price inflation) but on the other hand food inflation remains high and shelter is a major contributor to inflation. Prices in certain services rise at a fast pace due to rising wage costs. On balance, this implies that the Federal Reserve will continue to hike its policy rate in the near term and will keep a firm tone thereafter. It will be in no hurry at all to start easing. For that we will have to wait until 2024.
For the past 10 years the attractiveness of US Treasuries for foreign investors has been in decline. In the light of official projections that the US federal debt will almost double over the next ten years, strengthening their appetite appears paramount.
The United States remain the world’s largest economy in nominal GDP terms. Although at the root of the global financial crisis (2008-09), the country has swiftly recovered over the past decade, partly helped by the boom in the shale oil and gas industry. However, it has also lost ground in some other key industrial areas, mainly against China. At the same time, China has become a world leader in the strategic field of information and telecommunication equipment, and therefore a top supplier to US companies. This increased dependency, along with persistent and widening trade deficits, has led to a radical shift in foreign trade policy and a sizeable rise in US tariffs on imports.
As a consequence of the COVID-19 crisis, the US economy fell by 3.4% in 2020. The recession -the deepest since 1946- was nevertheless followed by a swift and strong rebound in 2021, the United-States being among the first countries to be vaccinated as well as to recover from the economic losses caused by the pandemic. In the aftermath of the authorities’ action to limit the consequences of the crisis, public debt and deficits have surged.
