JPMorgan Econ FI-Global Data Watch Fawlty towers-108470842.pdf

GlobalEconomicResearch31May2024JPMORGANwww.jpmorganmarkets.comEconomicandPolicyResearchBruceKasman(1-212)834-5515bruce.c.kasman@jpmorgan.comJPMorganChaseBankNAJosephLupton(1-212)834-5735joseph.p.lupton@jpmorgan.comJPMorganChaseBankNANoraSzentivanyi(44-20)7134-7544nora.szentivanyi@jpmorgan.comJ.P.MorganSecuritiesplcGlobalDataWatch•CBssettostarteasingwithafaiththatstill-elevatedinflationfades•Globaldriversofgoodspriceinflationmixed,butdeflationhasended•Chinapolicyslowlyrampingupbutwithmorelimitedeffect•Upnext:PMIs(up);USpayrolls(150k);ECB(-25bp),BoC(-25bp)FawltytowersMostcentralbanksmovedtowardapauseatthistimelastyearyearevenasglobalcoreCPIinflation(ex.ChinaandTurkiye)remainedclosetoa5%arin1H23.Thefoundationforthisshifttopatiencerestedontwojudgments.First,the2020-2022supplydisruptionsrelatedtothepandemicandtheRussianinvasionofUkrainewereunwindingandlookedlikelytosoonlowerinflation.Second,centralbanksreliedonstandardeconomicmodelssuggestingthatmonetarypolicyshocksaretransmittedwithaone-totwo-yearlag.Withnearly350bpofglobaltighteningdeliveredinthetwoyearsthroughJune2023,centralbankersweremindfulofgrowthandfinancialstabilityrisksassociatedwithastillpotentdragexpectedinthepipeline.Thefoundationforthispatienceappearedreasonabletousatthetime,aligningwithourviewsongrowthandinflation.Intheevent,centralbanker’spatienceprovedwarrantedascoreinflationsteppeddowntoa3.2%arin2H23despitesurprisinglystrongglobalgrowth.Inflationprogresshasstalledthisyear—globalcoreinflationistracking3.4%arin1H24—butDMcentralbankersarenowguidingtowardaneasingcycle.FollowingratecutsalreadydeliveredbytheSwissNationalBankandRiksbank,theECBandtheBankofCanadaareexpectedtolowerpolicyratesnextweek.TheFedandBankofEnglandareexpectedtoremainonholdinJunebutcontinuetoguidetowardratecutslaterthisyear.Incontrasttolastyear,ourtop-downassessmentdoesnotseestrongfoundationsforamaterialeasingcycle.Givencentralbankbiases,someeasinglookslikely.Butweseethepathaheadasmostlikelytodeliverstickyinflationandacontinuedscalebackofeasingexpectationsasthefoundationsoftheimmaculatedisinflationnarrativearechallenged.Specifically:-1.5-1.0-0.50.00.512131415161718192021222324%pt;Inflationswapdeviationfrom2005-12avgFigure1:Inflationexpectations,5y5ySource:J.P.MorganGlobalEconomicsUSEMU-20246990409141924%oya;Laborforcegrowth+productivitygrowthFigure2:RealizedsupplySource:J.P.MorganGlobalEconomicsEMUUSSeepage4foranalystcertificationandimportantdisclosures.2BruceKasman(1-212)834-5515bruce.c.kasman@jpmorgan.comJPMorganChaseBankNAJosephLupton(1-212)834-5735joseph.p.lupton@jpmorgan.comNoraSzentivanyi(44-20)7134-7544nora.szentivanyi@jpmorgan.comGlobalEconomicResearchGlobalDataWatch31May2024JPMORGAN•Moderatinggravitationalforces.Despitethe1H24dis-inflationstall,upcomingforecastroundsfortheFed,ECB,andBankofEnglandwilllikelymaintainprojec-tionsthatinflationdropsto2%bytheendofnextyearinthefaceofsustainedexpansion.Thefoundationofthisviewliesinpre-pandemicexperienceoflowinflationandanchoredexpectationscloseto2%intheaftermathofvar-ie