Immigration is boosting the U.S. economy but is ‘underestimated’ | Private Equity Weekly

The recent influx of immigrants into the United States is helping to boost the economy despite a host of global challenges, said Joyce Chang, the firm’s global research chair. JPMorgan.

The Federal Reserve on Wednesday raised its 2024 U.S. GDP growth forecast to 2.1% from December’s 1.4%, as the economy continues to show resilience despite high interest rates as the central bank seeks to manage inflation.

At the same time, despite the tightening monetary environment, the labor market is still relatively hot, with the unemployment rate still below 4% in February and the economy adding 275,000 new jobs.

The Fed also raised its forecast for its preferred inflation measure: core personal consumption expenditures. Inflation data for January and February have dampened hopes that price increases are fully under control, with core PCE now expected to rise to 2.6% from 2.4%.

The core consumer price index, which excludes volatile food and energy prices, rose 0.4% month-on-month in February and 3.8% year-on-year, slightly higher than expected.

“We’re still seeing what’s happening globally, which is services inflation is still well above pre-pandemic levels, so we’re expecting core CPI to be 3%, but I think one thing that’s really undervalued in the United States is the immigration story, ” Zhang said Thursday on CNBC’s “Squawk Box Europe.”

“The U.S. population is nearly 6 million larger than it was two years ago, so when you see very low unemployment, a lot of that is because of the increase in consumption.”

She pointed to upward pressure on wages and housing costs, as well as a recovery in energy prices so far this year, as signs the Fed is “not out of the woods yet” on inflation.

A recent Congressional Budget Office report estimated net immigration to the United States at 3.3 million in 2023 and is expected to remain at this level in 2024 before falling to 2.6 million in 2025 and 1.8 million in 2026.

Immigration, particularly at border crossings, is one of the hottest topics ahead of November’s presidential election. Chang said other events could exacerbate the problem, particularly the developing situation in Haiti.

However, she believes immigration is “a good thing” in terms of net impact on the economy.

“From everything we’ve seen, revenue generated exceeds expenditures. Now this is a political issue, not just in the U.S. but in Europe, and it’s probably the number one issue right now, but we do think when you look at When you look at unemployment numbers, consumption intensity, you will find that immigration is an important part of it,” Zhang said.

Zhang added that other factors that make the U.S. economy outperform other countries include high fiscal deficits and energy independence. In recent years, Europe has been trying to eliminate its dependence on Russian energy supplies.

At the same time, the Congressional Budget Office predicts that the U.S. federal budget deficit will total US$1.4 trillion in 2023, accounting for 5.3% of GDP, and will increase to 6.1% of GDP in 2024 and 2025.

“I think in an election year, you’re also going to see a lot of spending leading up to September 30th, so there’s not a lot of indication that those numbers (will subside). I think that’s one of the reasons why I do think this higher Higher levels will last longer,” Zhang added.

With this in mind, JPMorgan Chase believes that the Fed will only see a “shallow” easing cycle, and inflationary pressures will persist against the backdrop of high government spending and immigration.