Question

Summary of the current U.S. macroeconomy (GDP, interest rates, environment, corporate) and predictions for the 2020 Macroeconomy

Answer 1

The U.S. economic outlook is healthy according to the key economic indicators. The most critical indicator is the gross domestic product, which measures the nation's production output. The GDP growth rate is expected to fall below the 2% and 3% ideal range. Unemployment is forecast to continue below the natural rate. There isn't too much inflation or deflation. That's close to a Goldilocks economy.

President Donald Trump promised to increase economic growth to 4%. That's faster than is healthy. Growth at that pace leads to overconfident irrational exuberance. That creates a boom that leads to a damaging bust. The factors that cause these changes in the business cycle are supply, demand, capital availability, and the market’s perception of the economic future.

Overview

Over the next several years, the economy will grow more slowly. Unemployment is expected to remain low, as will inflation.

Economic Growth

U.S. GDP growth will slow to 2.0% in 2020 from 2.2% in 2019. It will be 1.9% in 2021 and 1.8% in 2022. That's according to the most recent forecast released at the Federal Open Market Committee meeting on December 11, 2019.1 The projected slowdown in 2019 and beyond is a side effect of the trade war.

Unemployment

The unemployment rate will average 3.5% in 2020.1 It will bump up to 3.6% in 2021 and 3.7% in 2022. That's lower than the Fed's 6.7% target. Some people have been out of work for so long that they'll never be able to return to the high-paying jobs they used to have. As a result, structural unemployment has increased.

The real unemployment rate includes the underemployed, the marginally attached, and discouraged workers. For that reason, it is around double the widely-reported rate. You can put this report into perspective by viewing the unemployment rates since 1929.

Inflation

Inflation will average 1.9% in 2020.1 It will rise to 2.0% in 2021 and 2022. The core inflation rate strips out those volatile gas and food prices. The Fed prefers to use that rate when setting monetary policy. The core inflation rate will average 1.9% in 2020, 2.0% in 2021, and 2.0% as well in 2022. The core rate is right at the Fed's 2% target inflation rate. That may give the Fed room to lower interest rates. The U.S. inflation rate history and forecast helps predict the coming years’ inflation levels.

Interest Rates

The Federal Open Market Committee has maintained the current fed funds rate at a range between 1.5% and 1.75% as of its Dec. 11, 2019 meeting.2 It doesn't expect to increase this interest rate until 2021.1 The Fed is more concerned about promoting growth than about preventing inflation. In fact, it doesn't see inflation as a threat anytime in the next three years.

Climate Change

The Federal Reserve is concerned about how climate change is affecting the economy.6 Research from the Richmond Fed estimated that it will reduce U.S. economic growth by 30% over the next century.

Former Federal Reserve Chairs have urged Congress to enact a carbon tax to lower the dangerous levels of greenhouse gas emissions.

Damage from natural disasters, such as hurricanes, floods, and wildfires, was $160 billion in 2018.7 That’s lower than the record $350 billion set in 2017. These disasters killed 10,400 people in 2018 and 13,000 people in 2017. Insurance companies paid out $80 billion in 2018 damage claims and $140 billion in 2017.

These have become worse and more frequent due to global warming.7 There were 850 natural disasters in 2018, compared to only 500 a year between 1988 and 2017. U.S. insured losses were $80,000, double the 30-year average. The industry is frustrated by the lack of action on global warming solutions