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Slowing growth and market moodiness in the US

Growth is forecast to slow this year, while an expected rising interest rate regime is dampening stock markets

At the beginning of last year, economists and market investors concurred that the United States economy would grow robustly during the year, thanks to fiscal stimulus from December 2017's tax reform bill. Economists cautioned that the concomitant large federal budget deficit would add to an already tight labour market in raising inflation and interest rates, eventually constraining growth.

But inflation turned out to be lower than expected, due to weaker-than-anticipated wage gains, a collapse in oil prices and a strong dollar lowering the price of imports. Excess demand was also restrained by US companies investing little of their tax-cut windfall profits and repatriated foreign cash holdings in new domestic production, instead distributing them to shareholders, whose savings rose.

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A version of this article appeared in the print edition of The Straits Times on January 22, 2019, with the headline 'Slowing growth and market moodiness in the US'. Print Edition | Subscribe