May 6, 2019

News in Charts: US macroeconomic policy decoupling to continue in 2019

by Fathom Consulting.

Fathom’s Macroeconomic Policy Indicator (FMPI) provides a measure of the overall stance of macroeconomic policy across different countries. Based on the properties of Fathom’s Global Economic and Strategic Allocation Model, GESAM, it weights together the real rate of interest relative to its historic average, and the change in the cyclically-adjusted primary balance, as a measure of the change in the fiscal stance.

After three years when US policy has been acting to boost output relative to potential, Fathom’s forecast sees it returning to neutral this year, as President Trump’s fiscal loosening comes to an end, and as the real rate of interest continues to drift higher. In contrast to investors in US money markets, who believe the Fed Funds rate is more likely to fall this year than to rise, Fathom expects one interest rate rise in the second half of this year, and a second one in the first half of next year, as US growth remains above trend.

Although US growth is set to slow this year, a degree of momentum is likely to keep it above our estimate of trend. Next year brings the risk of a sharper slowdown, in the US and elsewhere, although our central expectation remains that a recession will be avoided.


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The picture in the euro area is somewhat different. With growth having slowed since 2017, and with core inflation still at just 1.2%, the ECB’s main refinancing rate is likely to remain at zero for the foreseeable future. With real rates of interest substantially below their historic average, the currency bloc is likely to grow at a rate of about one per cent this year ― due to an ageing population and weak productivity growth, this is still above Fathom’s estimate of trend growth.

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The charts in this article have been created using Chartbook on Datastream. The Chartbook was initially created by Fathom Consulting in 2012 and is now a catalogue of approximately 9000 charts, covering over 170 countries, analysing up-to-date macro and financial data. Whether it is a particular topic, country or variable you are interested in charting, the Chartbook has everything you need. To access Chartbook via Datastream search ‘cbook’.



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