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The U.S. economy grew moderately in 2018, and the Federal Reserve continued the process of raising interest rates, raising interest rates four times in 2018. The analysis pointed out that the U.S. economy is expected to maintain a steady growth in the future, but it faces downside risks in the context of the Fed's continued interest rate hikes, the weakening effect of tax cuts, and the continuous friction between the U.S. and its trading partners. Many analysts believe that its economic growth in 2019 will be Significant slowdown.

steady economic growth

The U.S. economy continued to grow at a moderate pace in 2018, the best in decades. The U.S. economy grew by 3.4 percent in the third quarter of 2018 and 4.2 percent in the second quarter. The Federal Reserve predicts that the U.S. economy will grow by 3.1 percent for the whole of this year, up from 2.2 percent in 2017. Many analysts predict that the growth rate of the US economy in the fourth quarter of this year will be between 2.5 and 2.8 percent, and the annual growth rate will be about 3%, which is similar to the Fed's forecast.

The Fed has raised interest rates four times this year, showing ample confidence in the growth of the U.S. economy. The Federal Reserve said in a statement after the interest rate meeting on the 19th that information since November shows that the US job market continues to be strong and economic activity is expanding steadily. Recent data show that the growth of household consumption in the United States is strong, but the growth rate of fixed asset investment in enterprises has slowed compared with the early part of this year.

The overall economic situation in the United States in 2018 is as described in this statement. The U.S. job market continues to be strong, with the U.S. unemployment rate remaining at 3.7 percent for the third month in a row in November, continuing its lowest level in 49 years. On the inflation side, the overall inflation level in the United States and the core inflation level excluding food and energy remain near the Fed's target of 2%. The U.S. consumer price index (CPI) rose 2.2 percent in November from a year earlier, the lowest level of CPI since January 2018.

The Fed said the risks to the outlook for U.S. economic growth were roughly balanced. The Fed expects that with further gradual adjustment of monetary policy, the U.S. economy will continue to expand in the medium term, the job market will remain strong, and the inflation rate will be near the Fed's "symmetrical 2% target.

Multiple downside risks

The U.S. stock market has been on a "roller coaster" many times this year. Since October, there have been two sharp falls. Since December, the major stock indexes have fallen by more than 10%. The 10-year bull market in U.S. stocks may be coming to an end. Analysts believe that behind the stock market crash, investors may think that the US recovery cycle is coming to an end. Some analysts pointed out that the US economy is still recovering, but it may have peaked. Indicators such as full employment in the labor market, accelerated wage growth, rising business operating costs, and slowing growth in the real estate market all show this trend.

The Federal Reserve forecasts that the U.S. economy will grow by 3 percent in 2018 and 2.3 percent in 2019. Economists generally believe that the US economic growth will slow down significantly next year due to factors such as the slowdown in overseas economic growth, the gradual fading of the fiscal stimulus effect, and the tightening of the financial environment caused by the Fed's continued interest rate hikes.

Since the start of the current rate hike cycle in December 2015, the Fed has raised interest rates nine times and started a balance sheet reduction plan to phase out the ultra-loose monetary policy introduced after the financial crisis. The Federal Reserve announced on the 19th that it would raise the target range of the federal funds rate by 25 basis points to a level of 2.25 to 2.5 percent, the fourth rate hike in 2018.

Federal Reserve Chairman Powell said that changes in the outlook for U.S. economic growth have caused the Fed to adjust its expectations for the pace of interest rate hikes next year. Most Fed officials had previously expected that the U.S. economic situation might support three rate hikes next year, but now it seems that the U.S. economy is more likely to be suitable for next year. Raise interest rates twice.

The Federal Reserve continued to raise interest rates, which hit the highest level in eight years, limiting investment demand. The confidence index of US residential builders fell sharply again in November, the biggest decline since 2014, and the real estate market began to cool down. The US manufacturing PMI also fell from its high level. The initial value of the US Markit Manufacturing Purchasing Managers Index in December was 53.9, which was lower than the expected 55.

The U.S. economic recovery, driven by loose monetary policy since 2008, had slowed down around 2016 and 2017, but the Trump administration's tax cuts helped prolong the recovery cycle. Economists believe that Trump's 1.5 trillion-scale tax cuts and defense and domestic spending growth plans have indeed helped boost economic growth, but the momentum of tax cuts has continued to wane since 2018.

Other analysts pointed out that tax cuts have indeed stimulated personal consumption and promoted US economic growth, but tax cuts have also promoted a continuous increase in the fiscal deficit. A debt ratio of more than 90 per cent is generally considered to be a hindrance to economic growth, and the US debt has reached a record of more than $20 trillion. At the same time, rising interest rates have brought higher debt-servicing costs, and the long-term fiscal position of the United States is worrying, or dragging down its economic growth.

The Congressional Budget Office expects debt service costs to rise from the current $more than 260 billion to $800 billion by 2027 over the next decade, nearly 3 percent of GDP and twice as high as today. At the same time, the aging population of the United States is becoming more and more serious. With the surge of retired population, the ratio of social security and medical insurance expenditure to GDP in the United States will increase by 1%, and the sum of the two will reach 11% of GDP.

Global economic growth is also slowing. Lagarde, President of the International Monetary Fund (IMF), said that global economic growth has begun to stagnate at the current level, the growth of countries is becoming increasingly out of sync, and there are fewer and fewer countries with economic expansion. The growth momentum of developed economies has weakened; European economic growth has slowed; the Japanese economy has also experienced downward pressure in the second half of 2018; emerging economies have generally grown faster than developed economies, but some countries have also weakened.

Tariff worries appear

The Trump administration's trade policy is also a major concern for U.S. economic growth. In 2018, friction between the United States and its major trading partners continued. The analysis pointed out that the escalation of trade frictions may lead to a reduction in the competitiveness of US export products and an increase in corporate costs. It may also lead to high consumption costs and a subsequent decline in consumption performance.

The Congressional Budget Office in August cut its 2018 U.S. economic growth forecast to 3.1 percent from 3.3 percent and to 2.4 percent in 2019 and 1.7 percent in 2020. The U.S. Congressional Budget Office stated that high tariffs will increase inflationary pressures, leading to a reduction in domestic purchasing power, and will also reduce the international competitiveness of U.S. exports. Profits and employment in industries such as retail will also be cut by the trade war.

Recent research by the New York Fed shows that imposing more tariffs on imported products is unlikely to narrow the U.S. trade deficit, because domestic producers may face higher export costs. For example, the benchmark price of U. S.-made steel rose 28% in 2018 due to U.S. tariffs on imports. The benchmark price reached about $920 per ton in 2018, the highest level in a decade.

The data shows that due to the rising costs caused by the trade war, the appreciation of the US dollar, and the cautious attitude of consumers, about 1/3 of the S & P constituent companies have fallen short of expectations. The Fed's latest Beige Book shows that the price increases caused by the tariffs have spread to a wider area. The Beige Book pointed out that companies whose costs have risen due to tariffs have expanded from manufacturers and contractors to broader areas such as retailers and restaurants. Companies are concerned about rising tariffs. As tariffs increase input costs, U.S. manufacturers are raising prices. Almost all surveyed companies said that input costs have risen faster than final product prices.