Week in review
- U.S. Federal Reserve holds rates at 5.25-5.50%
- Australia retail sales softer at -0.4% m/m for March
- China PMI for manufacturing rose to 51.4
Week ahead
- RBA policy meeting
- Bank of England policy meeting
- Eurozone retail sales
Thought of the week
The market is adjusting to the idea that rates will be ‘high for longer’ after last week’s FOMC meeting. This is not the same as ‘higher for longer’ as there is no suggestion that any further rate hikes are needed. However, the risk is that by leaving policy in restrictive territory the potential for a policy error increases and the proverbial hits the fan. There are already some cracks in the resilient U.S. economy narrative. Rising delinquency rates on credit card and auto loans may be a sign of stress in lower socio-economic households. The NFIB Small Business Optimism Index is the lowest since 2012. These indicators have been discounted given the ability of broader strength in corporate and household balance sheets to weather higher interest rates. But the boost from excess savings in the U.S. should end this year and the lagged impact of monetary policy could hit quickly creating a larger drawdown in growth than expected.
Support from U.S. household excess savings should end this year
Trillions of USD
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