Joyce Chang, chief of global research at JPMorgan, claims that despite many global issues, the recent spike in immigration into the U.S. is supporting the economy.
The United States Federal Reserve increased its forecast for U.S. GDP growth in 2024 to 2.1% on Wednesday from 1.4% in its December outlook. This is because the economy is still showing signs of resilience despite high interest rates, which the central bank is using to control inflation.
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Despite tighter monetary policy, the labor market has remained reasonably hot, as seen by the 275,000 new jobs the economy created in February and the unemployment rate being below 4%.
Additionally, the Fed increased its forecasts for core personal consumption expenditure, which is its favored inflation indicator. It raised its expectations for the core PCE from 2.4% to 2.6% after the inflation data for January and February dashed expectations that price hikes were completely contained.
The volatile food and energy costs are not included in the core consumer price index, which increased 0.4% in February and 3.8% year over year—a marginal increase over projections.
“We are still seeing 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 core CPI, but I think one thing that was really underestimated in the U.S. was the immigration story,” Chang recently shared with CNBC’s “Squawk Box Europe” in an interview.
“The U.S. population 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 numbers as well.”
She pointed out that the Fed is “not out of the woods yet” in terms of inflation given the increasing pressure on salaries and housing expenses as well as the return of energy prices thus far this year.
According to a recent analysis by the Congressional Budget Office, net immigration to the United States was expected to reach 3.3 million in 2023 and stay there through 2024, then decline to 2.6 million in 2025 and 1.8 million in 2026.
One of the most hotly debated subjects in the lead-up to the presidential election in November is immigration, specifically border crossings. Chang suggested that further events, notably the developing circumstances in Haiti, would make the problem worse.
She did, however, contend that immigration is “a good thing” in terms of its overall effects on the economy.
“From everything that we have seen, 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 probably 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 part of that,” Chang remarked.
According to Chang, the U.S. economy has outperformed other economies due to several other reasons, including its large budget deficit and energy independence. In recent times, Europe has faced challenges in eliminating its dependence on Russian energy supplies.
According to the Congressional Budget Office’s projections, the federal budget deficit in the United States was $1.4 trillion in 2023, or 5.3% of GDP, and is expected to rise 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 well, so there aren’t really many signs that those numbers will subside. I think that’s one reason why I do think that higher for longer will be here to stay,” Chang noted.
Chang concluded that in light of this, JPMorgan believes that the Federal Reserve will only engage in a “shallow” cycle of tightening, with inflationary pressures expected to continue due to high government expenditure and immigration.
The fiscal year of the United States government ends on September 30.
