Economic forecasting is not easy.
At various points over the past two years, it looked like the United States was slowing down dramatically. At the beginning of 2023, the consensus forecast was the looming call of a recession. This year, with the deterioration of some economic indicators, those calls returned.
It was understandable: high interest rates hurt the economy.
In some ways, it was stasis. The manufacturing sector has suffered for months. Anything related to housing is undoubtedly in a recession. Dollar stores have been wilting under the weight of the pain, and the bottom quintile is very likely to suffer a recession.
In contrast, the strength of 30-year fixed interest rates continues to drive spending. The United States is also benefiting from massive amounts of fiscal stimulus at 7% of GDP, and stock markets are benefiting from an investment boom in artificial intelligence. I fear what will happen when the financial tap runs dry. The 30-year fixed rate is also on the decline, with 16% of all mortgages now at rates greater than 6%, according to Housingwire.
For me, the turning point in expectations (which is easier in hindsight) was Walmart’s earnings report. I’ve written about it extensively because it’s a company that has better data than anyone else.
“So far, we’re not seeing a weaker consumer overall,” CEO Doug McMillon said.
The Fed is right to be dovish because inflation is trending down and 5% interest rates are unnecessary now, but Powell appears to have a great chance of making a soft landing. I don’t think it’s time to worry about inflation coming back just yet, but it may depend on how strong China’s stimulus is.
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