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Higher for longer means more headwinds for US growth
Twelve months ago, the consensus view was that rapid and aggressive monetary policy tightening coupled with a growing reluctance of the banks to lend would inevitably take its toll on the economy. Recession was the consensus call. Yet, in the third quarter, the economy expanded at a 4.9% annualised rate, unemployment was just 3.8%, and inflation remained closer to 4% than the 2% target. Having confounded expectations, financial markets have embraced the Fed’s higher-for-longer narrative on interest rates with 10Y Treasury yields up at 5% and the dollar strengthening to 12M highs on a trade-weighted basis. This is ... (full story)