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.

Fed runs risk of overtightening

Fed runs risk of overtightening

The Fed steps up the pace of balance sheet reductions and interest-rate hikes in the second half of 2018.

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Trump, tariffs, and retaliation

Trump, tariffs, and retaliation

The real damage to the U.S. economy will come through trade retaliation since it will hurt business confidence and the financial markets.

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Eurozone growing, ECB delaying

Eurozone growing, ECB delaying

The region’s growth is likely to pick up as economic indicators improve, but the trade spat with the United States continues to cast a shadow.

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About the macro report

The Macro Report is written by members of Putnam’s Fixed Income team. With backgrounds in applied economics, currency and interest-rate analysis, and sovereign and local bond market dynamics, this group conducts macroeconomic research in support of Putnam’s global fixed-income strategies.

Michael Atkin, Portfolio Manager
Investing since 1988
Sovereign debt, global growth analysis

Albert Chan, CFA, Portfolio Manager
Interest-rate derivatives, government debt, risk analysis

Onsel Emre, PhD, Analyst
Inflation, risk analysis, global growth dynamics

Sterling Horne, Analyst
Politics and economics

Irina Solyanik, CFA, Analyst
Quantitive analysis, growth forecasting

Izzet Yildiz, PhD, Analyst
Labor market analysis, global growth dynamics