US passengers.
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A recent surge in U.S. immigration is helping support the economy despite a host of global challenges, said Joyce Chang, head of global research for the United States. J.P. Morgan.
The US Federal Reserve on Wednesday raised its forecast for US GDP growth to 2.1% for 2024, up from 1.4% in its December forecast, as the economy continues to show resilience despite high interest rates as the central bank seeks to control inflation. .
Meanwhile, the labor market remains relatively hot despite tightening monetary conditions, with the unemployment rate remaining below 4% in February and the economy adding 275,000 jobs.
The Fed also raised its forecasts for its preferred measure of inflation: core personal consumption spending. Core PCE is now expected to be 2.6%, down from 2.4%, after inflation in January and February dampened hopes that price increases were under control.
The core consumer price index, which excludes volatile food and energy prices, rose 0.4% in February from the previous month and 3.8% from the same period last year, slightly above forecast.
“We’re still seeing a phenomenon around the world where service inflation is still well above pre-pandemic levels, so we’re looking at 3% for core CPI, but I think one thing that’s been really underappreciated in the U.S. is the immigration story,” Chang told CNBC’s “Squawk Box Europe” Thursday.
“The US population is almost 6 million larger than it was two years ago or so, and that explains a lot of the growth in consumption, although you also see very low unemployment.”
She noted that upward pressure on wages and housing costs, as well as a rebound in energy prices this year, suggest the Fed is “not out of the woods yet” when it comes to inflation.
According to a recent Congressional Budget Office report, net immigration to the United States was 3.3 million in 2023 and is projected to remain at that level in 2024 before declining to 2.6 million in 2025 and 1.8 million in 2026.
Immigration, and especially border crossings, is one of the hottest topics heading into the November presidential election. Chang suggested that other events could worsen the problem, especially the situation developing in Haiti.
However, she argues that in terms of its net economic impact, immigration is a “good thing.”
“From everything we have seen, revenues generated exceed expenses. Now this is a political issue, not just here in the US, but you look at Europe, it’s also probably the No. 1 issue right now, but we’re doing it.” Think about it, if you look at the unemployment rate and the consumption rate, immigration has played a big role in that,” Chang said.
Other factors that have allowed the U.S. economy to outperform its peers include high budget deficits and energy independence, Chang added. In recent years, Europe has struggled to end its dependence on Russia for energy supplies.
Meanwhile, the Congressional Budget Office projects the US federal budget deficit to be $1.4 trillion, or 5.3% of GDP, in 2023, rising to 6.1% of GDP in 2024 and 2025.
“I think that in an election year you’ll see a lot of spending up to September 30, so there’s really not a lot of indication that these numbers [will subside]. I think that’s one of the reasons why I think the ‘higher and longer’ mentality will continue,” Chung added. September 30 is the end of the US government’s fiscal year.
Given this, JPMorgan sees only a “shallow” easing of Federal Reserve policy, with inflation pressures remaining amid strong government spending and immigration.