Summer enthusiasm and parallels with 2000: here’s what the Fed is risking

If at the beginning of the year the forecasts were very pessimistic and a recession was expected, now it seems that the US economy is not suffocating and growth estimates continue to rise. At the moment, the quarterly outlook is much brighter than it seemed just three months ago: if until recently growth in the third quarter was expected to be 0.6%, now Morningstar estimates the rate to be 1.6%.. Important support is provided by inflation data, which, despite an increase in August compared to July from 3.2% to 3.7%, remains at a comforting level compared to the average levels of the last two years.

A carefree summer between concerts and Barbieheimer

US consumer spending did not disappoint this summer, rising 0.8% in July. Also stands out sharp decline in savings rate, which was partly due to high electricity consumption caused by a much hotter than normal climate. But not only. Demand for experiences continues to grow: from searching for tickets for the “Era” tour by Taylor Swiftfor those who will take part in the concert part of the “Renaissance” tour Beyoncéalso passing through the world of cinema, which with a double Barbie and Oppenheimer, both released July 21st. Taken together, these major events appear to have influenced macroeconomic outcomes.

“Combining associated travel, accommodation, food and beverage costs with direct ticket costs could add 0.6% to GDP growth in the third quarter of this year, with a similar effect in the fourth quarter,” notes . Tim DraysonHead of Economics Department Legal and general investment management (LGIM).

Another sector that continues to grow month after month is the car production: According to the Federal Reserve, in July, production reached 11.87 million units., up from 10.91 million units in June. While these numbers continue to rise, sales have virtually stalled and it is unlikely that the sector will be able to drive further growth.

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Autumn, however, will bring headwinds

However, as fall approaches, headwinds may be coming to the United States.. “In October,” explains Drayson, “student loan payments will begin, which, all other things being equal, will take 0.3-0.5% of the disposable income of families with a relatively high marginal propensity to consume.” But not only that, tax policies are becoming increasingly restrictive, and while California’s counties have benefited from steadier cash flows in recent months thanks to a six-month tax deferral, those are set to expire in October.

Another factor boosting the US economy was the fact that small and medium-sized businesses were claiming various refunds, which was in line with some of the government’s plans, but now the Internal Revenue Service has begun to slow down the process due to fears of fraud. This new course of action could cause a potential negative fluctuation in US gross domestic product (GDP) of more than 0.5%.

We also have to consider that while falling energy prices over the past year have pushed real incomes up by almost 1%, in recent weeks, gasoline prices have begun to rise again and this will have an impact on the market.

But the main factor that can cause the onset of a recession isdelayed effect of monetary tightening. So Rthe exit is yes, but not quite around the corner. According to LGIM experts, we may have to wait until the end of the year. At the same time, however, the parallels with 2000 cannot be ignored, “when the Fed felt comfortable keeping rates in restrictive territory throughout the summer and fall, only to be surprised by the extent of the economic slowdown. This triggered an emergency rate cut in January 2001.”

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