We are increasingly being asked if higher for longer interest rates could help spur consumption by boosting interest income. This report examines household income and balance sheet data to see if they might.
The most vulnerable households have whittled down their real debt balances while achieving significant real wealth gains. The combination has made consumption more resilient to income hiccups than in past cycles.
Although the multi-decade surge in the value of households’ equity holdings has made US activity more vulnerable to a stock selloff, the latest income, spending and employment data suggest that consumption growth can carry on at a 2% inflation-adjusted pace.
Against the earnings-versus-everything-else market backdrop, stellar earnings are easily outweighing elevated oil prices, rising yields and the increased probability that the Fed may hike rates before the year is out. US allocators should remain invested in equities.
We take stock of earnings, AI capex and the labor market and explain why we think the repeated new highs in the S&P 500 are justified.
New Fed Chair, Kevin Warsh, is betting that an AI-driven productivity acceleration will get the Fed out of jail for persistently missing its 2 percent inflation target. But history informs us that while new technology adoption is exponential, total productivity growth is not. So, if Warsh’s bet goes wrong, as is likely, the US inflation overshoot will persist. We discuss the investment implications. Plus, a new trade is short cotton.
Global trade has held up despite US non-AI import volumes contracting by 25% over the past 12 months. The strength in global trade has concentrated in two areas: (1) imports of AI-related hardware and (2) developing countries’ imports, especially from China. Will these continue?