Opinion: It could take 24 months to feel the effect of today's interest rates — but Jerome Powell is already telling us everything is fine.
Over the last 12 months, market analysts and commentators have relentlessly predicted that the United States is heading for a recession. However, the U.S. economy has been remarkably resilient and defied the forecasts. Indeed, we now have the U.S.
GDP growth in the United States from 2013 through the first quarter of 2023. Source: Federal Reserve Bank of St. Louis Household debt service payments as a percent of disposable personal income, 2013–2023. Source: Federal Reserve Bank of St. Louis Beyond this, as much as headline Consumer Price Index inflation has been declining, core inflation remains hot at 4.8% — well above the Fed’s 2% target. While the cost of goods has fallen, the price of services remains high, driven by the tight labor market.Although higher interest rates have helped bring down inflation, the higher they go and the longer they stay high, the more expensive it gets for companies to invest in innovation and growth.
The FOMC seems set on its path, however, and with inflation likely to see some upward movement over the summer due to post-pandemic “revenge” spending among consumers, this could well lead to another rate hike in September. High and elevated rates will, though, impact capital expenditure. Indeed, access to capital is the single biggest concern for businesses today, with three-quarters of small and medium-sized enterprises already struggling.
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