Once again, Jim O'Sullivan, Chief US Economist at High Frequency Economics, fulfills his title as one of the most accurate forecasters in America.
Speaking to him last week before Friday's much stronger-than-expected US jobs report, which sent the dollar soaring and gold crashing, Jim told Financial Sense Newshour listeners to expect a "pretty strong bounce back" in the jobs number, firmly lifting chances for a December rate hike.
Jim has consistently been ranked as a top economic forecaster by MarketWatch and Institutional Investor, beating out consensus forecasts on the direction of the US economy for many years.
We last talked to Jim earlier this year when growth came to stop and many commentators were predicting the onset of a recession. At the time, Jim said the weight of the evidence did not support those in the recession camp and that the US would continue to chug along, albeit slowly.
Jim was correct and looking out the next 12 months, again, he sees low odds for a recession in the US but does think the markets are in for a surprise: inflation.
I think the unemployment rate will be down to 4.3% by the end of 2016 and probably drop a little bit more in 2017. And if that's the case, then I would expect to see a bit more upward pressure on inflation and more tightening than markets are pricing in.
Here are a few excerpts from his recent podcast interview (preview below) where he offers his outlook on a number of important issues. Subscribers can access the full audio by logging in and clicking here.
On His Call for a Bounce Back in Friday's Jobs Number
"The latest GDP number was a bit weaker again. You had that very weak first quarter, which at one point was negative, and that's been revised away. But it's now 0.6 in the first quarter, all the way up to 3.9% in the second, and now you're at 1.5% in the third. I've got 2.7% forecast for the fourth and again I think it's a trend of 2-point-something and meanwhile I think the unemployment rate keeps trending down. Obviously, next week we have the unemployment rate—that's going to be a key thing to watch. People are wondering whether employment growth is slowing as the last couple reports imply but I expect we'll see a pretty strong bounce back in the October employment report."
No Significant Risk of Recession
"Whether I look at the economic data...the equity markets...the yield curve, I don't see a significant chance of recession in the year ahead. You never say never of course and obviously you could see a scenario where global turmoil intensifies and that spreads to US markets and the US equity market takes a big tumble—that's always possible and obviously people were getting a little nervous late August, early September but at this point, again, I don't see an elevated risk."
"About to start an extended tightening cycle"
"I think we're on track for tightening. I think they should be tightening and I think we're about to start an extended tightening cycle even though, frankly, it will be a while before policy is actually tight in any absolute sense."
More Tightening Than Priced In
"I think the unemployment rate will be down to 4.3% by the end of 2016 and probably drop a little bit more in 2017. And if that's the case, then I would expect to see a bit more upward pressure on inflation and more tightening than markets are pricing in."
Listen to this full interview with Jim O'Sullivan by logging in and clicking here. For a complete archive of our broadcasts and podcast interviews on finance, economics, and the market, visit our Newshour page here or iTunes page here. Subscribe to our weekly premium podcast by clicking here.