Americans may have dug deeper to finance their next car or future home purchase.
The Federal Reserve’s efforts to cool an overheating economy seem to have not yet got the job done, prompting the head of the International Monetary Fund on Saturday to urge more action in order to bring inflation back to sustainable levels.
For all the recent attention about eliminating generative AI jobs, the spending on more productive IT systems cited by Nvidia semiconductor has yet to cause a surge in unemployment that might worry the Fed. no Bank lending data I saw no sign of noticeable deterioration, either.
“The Fed will have to stay the course and maybe, in our view, may need to do more,” IMF Kristalina Georgieva to CNBC on Saturday.
Capital markets were hoping Federal Reserve Chairman Jay Powell had finished the hitchhiking cycle, and she is Barely over a year now. After the Silicon Valley bank collapse in March, investors have already started betting on how quickly and quickly the Fed will have to ease policy again.
US interest rates have not been this high since mid-September 2007, when the Federal Reserve Cut interest rates by half a point to 4.75% as the subprime mortgage crisis began to spread in the broader economy.
If the Fed follows Georgieva’s advice and tightens another half point to 5.5%, policy will reach levels not seen since The dotcom era.
Despite having one of the highest interest rates this side of a millennium, real rates—that is, once lending costs are adjusted for inflation—are not yet constrained. That’s because consumer price gains are running at a similar 5% rate, according to official government figures.
This may explain why there has been little strong evidence in recent economic data that activity is showing distinct signs of slowing down. On Friday, for example, markets were caught off guard by hot May payroll data that helped lift the tech-heavy Nasdaq to August 2022 highs to a 52-week high.
However, the high cost of borrowing presents potential problems given the face value of the debt currently outstanding.
Last month, the New York branch of the Federal Reserve revealed a debt violation of US households 17 trillion dollars mark In the first quarter of this year. Roughly three-quarters of that is mortgage liabilities, which are backed by residential and real estate assets on the other side of the balance sheet. but credit card debtfor example, now reached to Standard level Just shy of $1 trillion.
But for now, all signs point to growth in the US simply slowing, with the International Monetary Fund forecasting economic output to expand 1.6% in 2023 versus 2.1%. last year.
“We haven’t seen a significant slowdown in lending yet,” Georgieva told CNBC. “There are some, but not large scale, that would lead to a Fed rollback.”
