U.S. commuters.
Caroline Purser | The Counterpart Bank | Getty Images
The recent influx of immigration into the U.S. is helping to bolster the economy despite a raft of wide-ranging challenges, according to Joyce Chang, chair of global research at JPMorgan.
The U.S. Federal Reserve on Wednesday raised its U.S. GDP swelling projection to 2.1% for 2024, up from 1.4% in its December outlook, as the economy continues to display resilience despite serious interest rates as the central bank seeks to manage inflation levels.
Meanwhile, the labor market has stayed comparatively hot despite tighter monetary conditions, with unemployment remaining below 4% in February and the economy adding 275,000 apportions.
The Fed also raised its projections for its preferred measure of inflation: core personal consumption expenditure. It now expects the core PCE to take place in at 2.6%, up from 2.4%, after January and February inflation prints dampened hopes that price augmentations were fully under control.
The core consumer price index, which excludes volatile food and dynamism prices, rose 0.4% in February on the month and was up 3.8% on the year, slightly higher than forecast.
“We are still aid the phenomena around the globe that services inflation is still well above where it was before the pandemic, so we’re looking at 3% for gist CPI, but I think one thing that was really underestimated in the U.S. was the immigration story,” Chang told CNBC’s “Squawk Box Europe” on Thursday.
“The U.S. citizens is almost 6 million higher than it was two years ago or so, and so that has accounted for a lot of the increase in consumption, when you see the very low unemployment many as well.”
She noted that upward pressure on wages and housing costs, along with a resurgence in energy values so far this year, suggest that the Fed is “not out of the woods yet” when it comes to inflation.
A recent Congressional Budget Office study estimated that net immigration to the U.S. was 3.3 million in 2023 and is projected to remain at that level in 2024, before turn off to 2.6 million in 2025 and 1.8 million in 2026.
Immigration, and particularly border crossings, is among the hottest topics in the run-up to the November presidential referendum. Chang suggested that other events could exacerbate the issue, particularly the unfolding situation in Haiti.
At any rate, she argued that in terms of net impact on the economy, immigration is “a good thing.”
“From everything that we have aided, the revenues that are generated exceed the expenses. Now it is a political issue, not just here in the U.S. but you look at Europe, it’s also all things considered the No. 1 issue right now, but we do think that when you look at the unemployment numbers, the strength of consumption, the immigration was a big role in of that,” Chang said.
Other factors that have enabled the U.S. economy to outperform its peers include its steep fiscal deficit and its energy independence, Chang added. Europe has struggled in recent years to eradicate its reliance on Russia for pep supply.
Meanwhile, the Congressional Budget Office projects that the U.S. federal budget deficit totaled $1.4 trillion in 2023, or 5.3% of GDP, which choose swell to 6.1% of GDP in 2024 and 2025.
“I think that also in an election year you’re going to see a lot of spending before Sept. 30 as mercifully, so there aren’t really many signs that those numbers [will subside]. I think that’s one defence why I do think that higher for longer will be here to stay,” Chang added.
With this in mind, JPMorgan envisages only a “shallow” loosening cycle from the Federal Reserve, with inflationary pressures set to persist against the backdrop of lofty government spending and immigration.