JPMorgan: Immigration has been boosting US economy, but underestimated

The US central bank raised its forecast for GDP growth in 2024 from 1.4% in its December outlook to 2.1%, this was based upon the US economy’s continued resilience against the currently high interest rates as well as the efforts by the Fed to combat inflation, so far.

The US labour market has been reasonably strong despite tighter financial circumstances, with unemployment around 4% in February and the economy added 275,000 jobs. As a result, immigration has been underestimated in the whole US economic context.

The Fed’s preferred inflation indicator, the core personal consumption expenditure, is expected to rise from 2.4% to 2.6% for March. The inflation figures for January and February impacted hopes that price increases were fully under control. This is why there has been an increase. The core consumer price index grew by 3.8% annually and 0.4% monthly, just above forecasts.

Given the increased pressure on wages and housing costs, the return of oil prices thus far this year, and other factors, it seems that the Fed is “not out of the woods yet” with regard to inflation. The Congressional Budget Office recently released an estimate predicting that net immigration to the US would hit 3.3 million in 2023 and remain there through 2024, then decline to 2.6 million in 2025 and 1.8 million in 2026.

Immigration, and more especially border crossings, is one of the most highly contested issues in the run-up to the presidential election in November. Other variables, particularly the state of affairs in Haiti, have the potential to exacerbate the issue. Nevertheless, she insisted that, in terms of its overall economic effects, immigration is “a good thing”. Immigration is undoubtedly the most significant issue facing Europe right now, despite being a political one because the benefits it brings in far exceed the costs.

A large portion of the US economy’s success can be attributed to its energy independence and massive budget deficit. In recent years, Europe has struggled to wean itself off of its dependency on Russian energy sources. The US federal budget deficit, which represents 5.3% of GDP in 2023, was projected by the Congressional Budget Office to be $1.4 trillion in 2024 and 6.1% in 2025. In light of this, JPMorgan predicts that the Federal Reserve will only carry out a short cycle of tightening, with rising government expenditure and immigration likely to sustain inflationary pressures.