Economy Stays Strong but Risk Assets Move Lower Again in Q3
By Mitchell Anthony
October 10, 2022
The US Economy has found a way to avoid recession despite a record rise in interest rates.
Consumption in the US economy has remained resilient despite a record rise in interest rates and the highest inflation in 40 years. This is somewhat unexplainable but likely tied to the fiscal stimulus that was poured into the US economy in a plentiful manner by the U.S. Congress as it worried about getting the economy back on its feet after Covid. Investors and strategists seemed almost certain that the US economy was headed for recession in the first half of 2022 as the FED began to raise rates aggressively, however after two quarters of negative GDP optimism for economy growth has sprung back to life and the 3rd quarter is expected to be positive with over 2.5% GDP. Actually the US economy was never seemingly in recession despite the negative growth. Unemployment has remained at near record lows and with it came a return to strong consumption. That’s the positive spin, however as we all know inflation is out of control and central bankers are in the position of busting it even if it means busting the values of all risk assets as well as consumption and employment. The Fed has been at work raising rates and investors have been doing it right along with the Fed. Mortgage rates have risen from 2.5 to over 7% currently (figure 1). Surprisingly housing has not busted and consumer spending has continued to grow. Strong Employment seems to be the backbone of the economic resilience. Consumers still have liquidity from Covid stimulus, though it seems to be waning based upon a notable increase in credit usage.
Here good news on economic growth is bad news for our inflation problem as inflation needs to cool rapidly to avoid significantly higher rates and the economic slowdown has not arrived as thought and is truly needed!Read more
