Chicago Fed Letter
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According to participants in the Chicago Fed’s annual Automotive Outlook Symposium, the nation’s economic growth is forecasted to be near its long-term average this year and to strengthen somewhat in 2017. Inflation is expected to increase in both 2016 and 2017. The unemployment rate is anticipated to edge lower through the end of 2017, reaching 4.8% by then. Light vehicle sales are predicted to be flat, at 17.3 million units, in 2016 and decrease slightly in 2017.
The authors use a new statistical method to attribute daily changes in U.S. Treasury yields and inflation compensation to changes in investor beliefs about domestic and foreign growth, inflation, and monetary policy. They find that while foreign developments have been important drivers of U.S. yields and expected inflation over the last decade, the recent divergence between U.S. and European monetary policy has had little effect. Instead, the behavior of asset prices seems consistent with positive “aggregate supply shocks.” One candidate for such shocks is the large decline in energy prices experienced since June 2014.