Under the surface, the impact of higher rates is undeniable

interest rates

Morgan Stanley | Despite the fastest tightening cycle in recent history, US macro has shown signs of strength, leading many investors to perceive the lack of a slowdown as a sign that the economy has been less affected by monetary policy than initially expected. In this sense, E. Z. acknowledges that activity has generally held up well, but under the surface, the impact of higher rates is undeniable. Although factors such as layoffs/hiring freezes, excess savings, falling gas prices, stronger corporate earnings and balance sheets have supported the economy. The more sensitive areas have reacted as expected:

1: real estate activity has fallen more than in previous cycles, and more than estimated in the macro team’s models, and additionally,

2: consumption of durable goods has also moderated. As a consequence, Ellen has revised down its consumption estimates and expects real PCE to grow +0.5% 4Q/4Q in 2023 (vs 0.8% previously) and 1.2% in 2024 (vs 1.4% previously).

However, E. Z. warns that as these supporting factors weaken and even disappear in the coming months, the economic slowdown should materialise more clearly.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.