Country Report United States

Outlook for 2008-09

• Barack Obama, the presumptive Democratic presidential candidate, will win the November presidential election. The party will also fare well in the November congressional elections, boosting its majorities in both houses.
• Mr Obama's rival, Hillary Clinton, has, however, been reluctant to concede defeat. She may be holding out for an offer from Mr Obama of the vice-presidential nomination.
• The Fed will stay its hand to gauge the impact of the tax rebates and effect of surging commodity prices on inflation, but should still cut the fed funds rate by a further 50 basis points before end-2008. It will tighten policy in 2009.
• Real GDP is forecast to rise by 0.8% this year and by 1.1% in 2009. Notwithstanding a rise in first-quarter GDP, economic conditions may already be recessionary. No sustained recovery in the housing market is likely until 2010.
• The severe weakness of domestic demand should help to contain inflationary pressures, but the rapid pick-up in upstream prices this year suggests that inflationary pressures may take longer to ease than we assume.

Monthly review

• Mr Obama's victory in the June 3rd Montana primary and a surge in support from his party's "superdelegates" have pushed his delegate count above the 2,118 needed to secure nomination at the party's August convention.
• The Republican leadership has been thrown into turmoil by the dramatic victory of three Democratic candidates in congressional elections in previously safe Republican seats in Louisiana, Illinois and Mississippi.
• Congress and the Bush administration are inching towards a sweeping overhaul of the regulatory framework as well as further assistance for hard-pressed homeowners.
• The Fed has recently signalled an important shift in monetary policy, indicating that renewed inflationary pressures may prompt a more cautious approach to stimulus, including a pause in interest rate reductions.
• The median selling price for existing homes tumbled by 8% in April from a year earlier. There was also a surge in inventories and a drop in existing home sales for the second month in a row.
• The credit markets have stabilised, but the mood remains fragile. This has been reflected, inter alia, in a series of debt-financed acquisitions and share buybacks, the steadier US dollar and a surge in corporate debt issues.