Breaking news

Will the US economy survive?

“We need to keep inflation down even if the economy is in recession.” The message from Loretta Mester, chair of the Cleveland Federal Reserve, was unmistakable. At the annual meeting of central bankers in Jackson Hole at the end of August, Jerome Powell, chairman of the US Federal Reserve (the Fed), had said exactly the same in veiled terms. The warning, after an overly euphoric summer, recalled an unpleasant reality: central banks won’t be able to keep the markets afloat – not for quite some time yet. That turnaround has far-reaching implications for investors who, over more than a decade, have become accustomed to the world’s treasuries coming to their aid at the slightest sign of weakening. Monetary policy, however impactful it may be, is not the only factor determining the course of the markets. Economic developments also have a not negligible impact and the prospects in this area – especially in the United States – are perhaps less bleak than expected.

For starters, there is inflation. If we look beyond the monthly figures, we see a lot of elements that indicate that inflationary pressures are easing little by little. In the transport sector, which boosted inflation sharply in the spring of 2021, used car prices are steadily falling and new vehicle inventories are bulging, possibly stabilizing prices. In the broader economy, the bottlenecks that have messed up global supply chains in recent quarters are gradually dissolving, which could ease pressure on consumer goods prices. The trend is also more moderate in the housing market, the main source of inflation in recent months. Demand is falling – there are both fewer transactions and fewer credit applications – and supply is recovering. This will undoubtedly slow down the rise in real estate prices in the coming months. Finally, the strong appreciation of the US dollar against most other currencies is depressing the prices of imported products.

That inflation is expected to fall is good news for all economic players. At the same time, there are also less favorable prospects, such as stagnating consumption, the risk of companies stockpiling too much and a negative wealth effect if real estate prices are soon to fall. However, the US economy today has several safety nets. For example, the enormous mountain of savings that households have amassed during the corona crisis is still largely untouched. Neither households nor companies are excessively indebted and companies remain very profitable for the time being. Moreover, the labor market remains very strong. The number of unemployment benefits has only risen very limitedly and the number of new applications has actually been falling for a few weeks now. There are still many vacancies in relation to the number of job seekers and new jobs are still being created – more than 300,000 in August.

It is still a close call, but the economic data at the moment offers hope for a ‘soft landing’. In other words, there is a prospect of a scenario in which the Fed tightens monetary policy further without causing the US economy to slow down more than in recent months. That would be the ideal climate for equity markets to once again spread their wings on the basis of solid key figures.

The article is in Dutch

Tags: economy survive

NEXT LIVE: Gallery play in Bernabeu! Real taps Shakhtar rediculously, Zubkov unpacks with flying volley | UEFA Champions League 2022/2023