January 2020

2019 started out badly, with stocks falling nearly 20%, and ended extremely well with stocks rising nearly 30%. Driving this dramatic turnaround was a monetary policy U-turn. Instead of raising interest rates during the year, the Federal Reserve cut rates 75 basis points and resumed significant expansion of its balance sheet. GDP growth was a little weaker than forecast, but still above potential. Inflation was a little weaker. The trade war with China escalated dramatically, slowing global growth and pushing the U.S. manufacturing sector into recession. But as 2019 came to a close, China and the U.S. buried the trade war hatchet. All-in-all, 2019 seemed like a good year. But was it? Cheap and abundant money can cover over festering problems. We may look back on 2019 and conclude that it was a year of short-term gain that paved the way for long-run pain. 

In this month’s letter, Bill Longbrake summarizes forecasts for a slew of economic indicators for the U.S. and global economies for 2020. Significant risks which plagued the U.S. and global economies in 2019 have subsided, and optimism is running high that global growth will be stronger. In the U.S., momentum is slowing but forecasters expect growth will be near or slightly better than long-term potential. That’s good news. But significant risks, described here in detail, are brewing and will eventually boil over, perhaps in 2020.

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