CHERRY HILL, N.J., Dec. 17, 2014 /PRNewswire/ -- America's
economy is gaining steam and lower oil and gasoline prices are
adding fuel to the fire according to a report released today by TD
Economics (www.td.com/economics), an affiliate of TD Bank,
America's Most Convenient Bank®.
"The fall in energy prices could hardly have come at a better
time, said TD Chief Economist, Craig
Alexander. Just as the job market is hitting its stride and
wages are moving up, energy prices are falling, reducing inflation
and leaving more money in consumers' pockets."
After averaging 2.3% in 2014, the economy is expected to grow by
3% in 2015. With faster growth, the unemployment rate will continue
to fall, reaching 5.5% by the end of next year.
Lower gasoline prices a boon to American households
The biggest change on the economic landscape over the past few
months has been the rapid decline in energy prices. Since
September, oil and gasoline prices have fallen more than 40%.
The decline in energy prices is a simple matter of supply and
demand. "The fall in the global price of oil reflects the
combination of rapidly rising production in North America and falling consumption in
emerging markets," said Alexander.
American consumers are the clear beneficiaries. "While
falling prices will slow growth in oil-producing regions of the
country, the average American household will save over $500 on gasoline over the next year," said
Alexander. "Money that is not funneled into gas tanks will be used
on other goods and services, providing an important lift to
consumer spending."
As a result of the decline in prices, TD Economics has lifted
its expectation for consumer spending growth by 0.3 percentage
points over the next year relative to its previous forecast in
September.
The high-flying dollar will be a challenge to
exporters
The flipside of the decline in energy prices is the rise in the
dollar. It's hard to find a currency that has not fallen in value
relative to the dollar over the past several months.
Like oil, the high-flying greenback reflects the divergence in
economic performance between America and the rest of the world.
"With weak economic growth and inflation in Europe and Japan, foreign central banks are doing more
just as the Federal Reserve is doing less," said Alexander.
"Alongside declines in commodity-producing currencies, this has
meant broad-based increases in the dollar."
A rising U.S. dollar offers some benefits to America, by
reducing the price of imports. Over time, this will show up in a
lower rate of consumer price inflation. The forces behind the
stronger dollar are also keeping downward pressure on long-term
interest rates, further supporting consumers and home purchasers.
In the near-term, however, it will be a challenge to the nation's
exporters, whose goods will be more expensive to foreign
buyers.
"Given the magnitude of the dollar's rise, some of the
additional consumption we expect over the next year will be
imported from abroad," said Alexander. "This will provide a much
needed lift to growth in the rest of the world, but also means that
a rising trade deficit will weigh on U.S. growth."
The Fed will raise rates next year, but with inflation
falling, it can afford to be patient
With economic growth set to gain speed, the unemployment rate
will continue to move down over the next year. Taken by itself, the
improvement on the job front should mean higher interest rates.
However, this is balanced against an inflation outlook that has
become increasingly benign over the next year.
"The Federal Reserve does not set policy for the inflation rate
today, but for where it expects it to be in the future," said
Alexander. "As a result, the Fed will look through the
temporary weakness in inflation to indicators of future price
growth."
Rising job openings, falling unemployment, and rising wages are
all signs that, as the temporary impact of decreasing energy prices
falls out, inflation will move toward the Fed's target.
TD Economics expects the Federal Reserve to begin its rate
hiking cycle in the second half of next year and bring the Fed
funds rate up to 0.75% by the end of the year. By the end of 2016,
the fed funds rate will likely only be at 1.75%, which is still a
highly stimulative monetary setting.
TD Economics provides analysis of global economic performance
and forecasting, and is an affiliate of TD Bank, America's Most
Convenient Bank®.
The complete findings of the TD Economics report are available
online at
http://www.td.com/document/PDF/economics/qef/qefdec2014_us.pdf
About TD Bank, America's Most Convenient
Bank®
TD Bank, America's Most Convenient Bank, is
one of the 10 largest banks in the U.S., providing more than 8
million customers with a full range of retail, small business and
commercial banking products and services at approximately 1,300
convenient locations throughout the Northeast, Mid-Atlantic, Metro
D.C., the Carolinas and Florida.
In addition, TD Bank and its subsidiaries offer customized private
banking and wealth management services through TD
Wealth®, and vehicle financing and dealer commercial
services through TD Auto Finance. TD Bank is headquartered in
Cherry Hill, N.J. To learn more,
visit www.tdbank.com. Find TD Bank on Facebook at
www.facebook.com/TDBank and on Twitter at
www.twitter.com/TDBank_US.
TD Bank, America's Most Convenient Bank, is a member of TD Bank
Group and a subsidiary of The Toronto-Dominion Bank of Toronto, Canada, a top 10 financial services
company in North America. The
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SOURCE TD Bank