Research US: Shifting into a Higher Gear

He recovery has proven solid, with fixed investment and personal spending growing at pre-crisis rates. Job growth continues to lag, but an imminent upturn is on the cards.

Household spending should grow at a solid pace in 2011. The tax deal approved by Congress in December more than offsets the drag from rising oil prices, and faster employment growth supports incomes.

We expect GDP growth at 3.4% in 2011 and 2012 which is slightly above consensus expectations and well above potential growth.

The main risks to our forecast are a more violent increase in oil prices, similar to the 2008 price shock, and large fiscal uncertainty.

Rising oil and food prices will push inflation higher, but the CPI should remain under 2.5% y/y in 2011 and fall below 2.0% in 2012.

We expect the Federal Reserve to resume the gradual exit process late this year. With underlying inflation pressures subdued for the next two years, we do not expect the first rate hike before mid-2012.

Copyright Danske bank