US passengers.
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The recent influx of immigration to the United States is helping to boost the economy despite a host of global challenges, according to Joyce Chang, chair of global research at Harvard University. JP 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 higher interest rates as the central bank seeks to manage inflation levels.
Meanwhile, the labor market remained relatively hot despite tightening monetary conditions, with unemployment 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. The core personal consumption expenditures rate is now expected at 2.6%, up from 2.4%, after inflation data in January and February dampened hopes that price increases were fully under control.
The core CPI, which excludes volatile food and energy prices, rose 0.4% in February month-on-month and rose 3.8% year-on-year, slightly higher than expected.
“We continue to see the phenomenon around the world that services inflation is still much higher than it was before the pandemic, so we're looking at 3% for core CPI, but I think the one thing that's really been underestimated in the US is the story of… immigration,” Zhang told CNBC’s “Squawk Box Europe” on Thursday.
“The U.S. population is about 6 million higher than it was two years or so ago, and that accounts for a lot of the increase in consumption, when you see the very low unemployment numbers as well.”
She noted that upward pressure on wages and housing costs, coupled with higher energy prices so far this year, suggests the Fed is “not out of the woods yet” when it comes to inflation.
A recent Congressional Budget Office report estimated that net migration to the United States reached 3.3 million in 2023, and is expected to remain at that level in 2024, before declining to 2.6 million in 2025 and 1.8 million in 2026.
Immigration, especially border crossings, is among the hottest topics in the run-up to the presidential election in November. Zhang noted that other events could exacerbate the problem, especially the unfolding situation in Haiti.
However, she said that in terms of net impact on the economy, immigration is “a good thing.”
“From everything we've seen, the revenue being generated exceeds the expenditures. It's now a political issue, not just here in the United States but also when you look at Europe, and it's also probably the number one issue right now, but we believe when “You look at the unemployment numbers and the strength of consumption, immigration has been a big part of that.”
Zhang added that other factors that enabled the US economy to outperform its peers include its high fiscal deficit and energy independence. Europe has struggled in recent years to eliminate its dependence on Russia for energy supplies.
Meanwhile, the Congressional Budget Office projects that the US federal budget deficit will total $1.4 trillion in 2023, or 5.3% of GDP, which will swell to 6.1% of GDP in 2024 and 2025.
“I think in an election year also you're going to see a lot of spending before September 30 as well, so there's not a lot of evidence that these numbers [will subside]. “I think that's one of the reasons why I think the longer rally is here to stay,” Zhang added.
With this in mind, JP Morgan sees only a “superficial” easing cycle from the Fed, with inflationary pressures continuing on the back of higher government spending and immigration.
