In a report to our clients on October 22, considered the impact of a further 10% rise in the dollar on growth, inflation, rates, and equities in the U.S.1 The emerging divergence of interest rates and inflation between the U.S. and the rest of world, especially Europe, is a primary factor behind the rise. However, in this analysis we focused on just the effects of a rise in the dollar and do not assume lower growth and inflation abroad. The primary effects of a rise in the real exchange rate are to weaken U.S. GDP by undermining net exports and to lower inflation by softening import prices. Importantly, the impact on GDP of a dollar rise would be partly offset by favorable effects of moves in interest rates, equities, and consumer prices. o Interest rates decline both because monetary policy would respond to the initially weaker growth and lower … Continue Reading
Monthly GDP rose 0.3% in August, continuing a six-month run of solid increases following weak readings during the winter. The August increase was more than accounted for by domestic final sales; net exports and nonfarm inventory investment declined in August. Over the 6 months ending in August, monthly GDP rose steadily at a 4.4% average annual rate. Our latest tracking estimate of 3.3% GDP growth in the third quarter assumes a 0.2% decline (not annualized) in September. Were monthly GDP to instead increase 0.4% in September (the trailing 6-month average), Q3 GDP growth would be 4.1%. Click here for more information on MA’s Monthly GDP measure.