2024-01-28 19:07:30
USA insists on snub the forecasts. Recession? When? The consensus expected it to grow 2% in the last quarter of last year. And it fell very short: 3.3%. The economy is indomitable. It exploded in 2021 when it shipped with a 5.8% expansion (and retail inflation overflowed to 7%). So, the FED he took the gauntlet and tightened the pegs with a ferocious rise in rates. Activity slowed to 1.9% in 2022, but did not hit the wall.
Is the recession going to 2023 as predicted? No. It grew more: 2.5%. It is difficult to certify the landing when the flight is never suspended, or, as at present, if the cruising speed increases. And the recession? It only appears in the omens of the inverted yield curve and in the specific fall – it has been 21 consecutive months – of the leading basket of economic indicators. The bagwho also ate the feint with a bear market in 2022, embarked on a powerful bull marketthat same year, starting in October.
The United States is in the best of all worlds. It grows more vigorously and controls inflation better. The GDP deflator was expected to climb 2.8% in the fourth quarter. It barely marked 1.5%. The consensus was passed by. The second semester was incredible. The economy doubled its growth and The GDP deflator fit exactly into the 2% inflation target, for the first time since 2020. It is early to claim victory, there are price measurements that are not so meager yet, but it is impossible to think of anything else. Paul Volcker’s legendary FED, which in the late 70s and early 80s had to face inflation of similar stature, caused two recessions to bring it down, and never managed to reduce inflation as much as the records that Jay Powell credits without having concluded still the work. Volcker, by comparison, was carnage. And, for the record, it would be unfair to criticize him.
United States: the FED’s decision
What will the FED do at its meeting this week? Nothing. If everything is done and it is not wise to celebrate in advance. Two recent causes of concern have now disappeared. At the time, Powell was scared by the decline in retail sales and abruptly anticipated the FED’s pivot toward lowering rates. False alarm. The information is compelling. The drop in spending was offset by demand for services. And in December, consumption rebounded exultantly in all areas.
At the end of October, Powellwhich has not increased rates since July, had to appease, however, the rise in long rates, which he himself encouraged to moderate the excessive enthusiasm of the third quarter (+4.9%).
Las Ten-year rates fell from 5% to less than 4%. And the result was already seen. The economy grew 3.3% and did not weaken as feared. Another fleeting yellow light: consumer inflation jumped 0.3% in December. However, the personal consumption deflator (PCE), the yardstick used by the FED, barely rose 0.17%. In the last six months, PCE inflation showed an annualized increase of 2% (and the core version, 1.9%). In the last three months, 0.5% (and 1.5%, the core).
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It is the best of all worlds, it has already been said. Too good to be trusted, Governor Chris Waller noted long ago. But the data insists. What will the FED do in March, or in May? Will it lower rates as the markets want? It is at will. The central bank can do whatever it wants, it has already regained its full degrees of freedom. The economy is healthy, inflation is docilely converging on its goal, and the Fed Funds rate has been stationary at 5.50% for half a year. With a generously positive real rate, Powell and his people can choose the date of their first piacere cut.
The Stock Market saw it first. And she threw the bull market in 2022. And last week it swept the S&P 500’s old records. An economy in Duracell mode substantially improves the valuation. The FED saw it later. And it suspended the rate hike in July and later hinted at the reductions to come. But there are still many who do not see it.
And Donald Trump swept the Republican primaries. His supporters have no doubts, 71% are convinced that the situation is getting worse, as in the days of Lehman. Trump leads national polls by a wide margin. “It’s the economy, stupid,” think voters who are not data-dependent. What a problem for the FED, which is and can act at will. You don’t want to influence the election. But how to convince the parties, whatever their decision. It seems like the recipe for moving little and not inciting too much criticism.
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#grows #deflates