While interest rates have come off from an all-time low, the US economy keeps powering ahead and this is a bit of a phenom. After more than a year of aggressive interest-rate hiking to stem inflation, the labor market continues to be positive, with GDP growing at 4.9% last quarter, the fastest pace in nearly two years, and more importantly, productivity is growing too. In Europe, for comparison, industrial productivity is negative, wages are increasing, and the worst is still coming, the cost of restructuring its economy becomes the burden of the state.
Bloomberg Economics and Treasury Secretary Janet Yellen say that the present growth rate is unsustainable, while at the same time, investors are confident and return to high-risk investment opportunities.
The last time US government bond yields climbed above 5% so fast, the nation plunged into back-to-back recession, not this time round. More, everyone who has predicted a downturn since early last year has been dead wrong too. For now, we expect, the Federal Reserve will continue to feel the pressure to keep rates high so that inflation can be kept under control. So far, the FED has done an exceptional job since inflation excluding energy and capital costs, such as rent, since the rate of inflation is at 1.9%YoY while the same is still at 5.9% in Europe.
Keeping interest rates is obviously cooling off the housing market – this is probably the cost to pay as indexing them to a lower level, would spiral the economy out of control.