Despite rising prices — highest inflation since the 1980s — consumers have kept spending. And corporate earnings and margins have come in better than expected, underpinning the rally in US stocks. Again, defying bearish expectations for the stock market. Although the S&P 500 is off its high for the year, it is still up 10.6% year to date.
The US economy is signalling contradictions that have confounded many analysts, journalists, economists, academicians and casual observers alike.
Despite the US Federal Reserve’s aggressive interest rate hikes, economic growth has stayed relatively robust, defying widely held expectations for an imminent recession. Interest rates have risen from near zero to 5.25%-5.5% in less than one and a half years. Textbook economics tells us that higher interest rates (borrowing costs) will slow economic activities — by forcing consumers and businesses to cut back on spending. Oftentimes, this will also lead to higher unemployment. But the US unemployment rate has, thus far, remained near record lows. Indeed, workers appear to be gaining more bargaining power, considering the multiple union strikes for better wages this year.
