America’s Third-Quarter Outlook Brightens

After a rather dismal first half, the rate of growth of the U.S. economy looks set to pick up in the current period. If the MarketWatch consensus is correct, third-quarter growth could hit the tape at 3% or better.

Besides the economy’s internal dynamics, demand is getting a boost from external factors as well.

We can credit easy money and rock-bottom interest rates for bringing the economy to this point so far. Even fiscal policy has helped — after all, budget deficits have at least some redeeming qualities.

In addition to these, domestic demand is being fueled by a number of other developments that have originated from outside our borders.

Most important are lower prices for gasoline. Although up from their earlier lows, gas prices are well below where they were last year at this time, thus adding billions of dollars of purchasing power to household coffers.

Another, development is the apparent resolution of the Greek crisis. It removes a major uncertainty hanging over many banks and hedge funds, albeit a hard one to quantify.

Part and parcel of this is the rise in the euro EURUSD against the dollar. This makes U.S. goods and services more competitive in world markets, thereby giving a modest lift to our foreign trade accounts.

On a more controversial note, the nuclear deal with Iran has the potential to lower oil prices, since it will remove export restrictions. This will drive all kinds of energy costs down and will help us to become a more efficient economy.

We will get help from another country as well: China. Its slowdown in growth will take pressure off many commodity prices.

Because of developments in Iran and China, our domestic rate of inflation is likely to remain subdued. As a consequence, the Federal Reserve will very likely go slow when it comes to raising interest rates. The money mavens are already on record as expressing concern that inflation might go too low, even slipping into deflation.

Market Watch

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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