What gets attention in the marketplace of ideas and news is negativity and sensationalism.
What makes money in the marketplace of financial markets is reality.
One of those headlines that's gotten plenty of attention is doomsaying about record US credit card and mortgage debt. But of course, when you're looking at nominal numbers in a 10% inflation economy, everything hits record.
Here's the reality:
Measured as percentages of GDP, mortgage debt nor credit card debt are problematic. Of course, you won't hear about that on twitter because it's not alarmist.
However if you were listening to us at the turn of the year, we wrote that the US consumer was fine.
"The main risk I see is that the US consumer stays strong," I wrote.
Who cares, Adam, what happens next?
The way interest rate hikes work is by slowing choking out spending, first in the most interest-rate sensitive areas. New housing starts are tumbling and while there's still some catch-up in the inventory-depleted automotive sector, it's coming too. Companies are hit hard by higher rates and will look to cut spending.
Some of that has been delayed by higher government spending, reopening enthusiasm, inventory issues and a reluctance to lay off workers but the laws of supply and demand are unbreakable and higher interest rates will bite.
Today the Atlanta Fed GDPNow tracker for Q1 was cut to 2.0% annualized from 2.3%. A more-aggressive Fed means that headwinds will build in Q2 and beyond or as CIBC puts it:
"The economy’s ability to press higher in the first quarter may be more of a delay in its sentencing than a get out of jail free card."
Tomorrow we get JOLTS and ADP data, followed by non-farm payrolls on Friday. It may take months for rate hikes to stall out the economy but pandemic consumer savings are drying up and pent-up demand will fade.
Today's comments from Fed Chairman Jerome Powell and the swift reaction in the fixed-income market will fasten the process.
