Resulting boost to consumer incomes from lower oil prices will likely be greater than any federal tax cut ever enacted
The U.S. economy is looking strong for the first time since government statisticians declared the end of the Great Recession in 2009, according to Atlantic Trust, the U.S. private wealth management division of CIBC (NYSE: CM) (TSX: CM).
Lower oil prices—combined with consumer debt retrenchment and hyper-conservative business decision-making—have given way to a more optimistic view of the future and a more solid expansion, the report says. Meanwhile, sustained improvement in the job market has produced rising disposable income and consumer confidence.
"The bottom line is that we believe the energy price decline reinforces the already-strengthening trend in the domestic economy," says David L. Donabedian, CFA, Chief Investment Officer for Atlantic Trust. "It is likely that the resulting boost to consumer discretionary incomes will be greater than any tax cut ever enacted by the federal government. Furthermore, many businesses may enjoy lower input costs."
The positive U.S. storyline stands in contrast to weaker economic news around the globe, where policy makers were generally slower to react to the deflationary implications of the Great Recession.
The Eurozone and Japan have been experiencing particularly sluggish growth. As a result, additional policy stimulus is likely, though lower energy prices and weaker currencies may help create gradually improving conditions this year. The severe economic recession currently unfolding in Russia will also be an important geopolitical issue for financial markets to monitor in 2015.
The divergence in economic performance between the U.S. and other major economies means that monetary policies should also diverge, with the Federal Reserve looking to tap the brakes as other major central banks appear likely to accelerate things in the months ahead.
"If the Fed's projections for growth and inflation hold, we should see the first Fed funds rate hike around the middle of 2015," Donabedian notes. "However, the Fed's dual mandate of achieving full employment and stable inflation will ultimately drive the decision of when to tighten policy."
www.atlantictrust.com