The Macro Report | July 2018

Downside risks loom even larger


The outlook for global growth is favorable — albeit less synchronized — for the remainder of 2018. We are starting to see some convergence in growth rates — especially between the United States and the eurozone. The U.S. economy is poised to expand at a decent clip, buoyed by government spending and corporate investment. Across the Atlantic, there are some signs that the eurozone’s weak economic spell is ending. The European Central Bank plans to end its bond purchase program by the end of 2018. But, the bank remains dovish on interest rates.

However, our view of the United States and the global economy could change if the Federal Reserve overtightens and the trade spats escalate. Fed Chair Jerome Powell has expressed confidence about the U.S. economy, and signaled the march toward higher interest rates and balance sheet reductions would continue. The flattening Treasury yield curve — the narrowing in yields between longer-maturity and short-dated bonds — warrants greater attention from the Fed. In addition, the Trump administration’s approach to trade, including escalating the dispute with China, has already rattled global financial markets and businesses.


More from Macro Report

While the outlook for global growth is favorable — albeit less synchronized — the view could change if the Federal Reserve overtightens and trade spats escalate.