Shares, residential property, bonds, cryptocurrencies: all were part of a buying mania. At the tail end of 2021, asset prices were booming across the board in the US. To a large extent, it will be a recession of the central bank’s own making. The Fed will eventually cut interest rates aggressively but by then it will be too late to avoid a hard landing. Inflation will be squeezed out of the economy but at a heavy cost. ![]() Those institutions in better financial shape will limit the flow of new credit to firms and individuals. The longer rates stay high the tougher life gets for vulnerable banks. For that to happen, a lot more banks would need to start going bust. Jobs growth is slowing but that won’t be enough on its own to persuade the Fed to start cutting rates. Wall Street is expecting interest rates to start coming down in July and to be just over 4% by the end of 2023 but the markets are getting ahead of themselves. In the circumstances, it will be little short of miraculous if the Federal Reserve – the US central bank – manages to finesse a soft landing for the economy. Things could turn nasty very quickly, for the economy and for the president personally. If Biden is not worried about the implications of this for his re-election prospects in November 2024, then he should be. That has been followed by the most rapid increase in interest rates for four decades, which has taken official borrowing costs from near zero to more than 5% in little more than a year. The US has just witnessed one of the biggest bubbles of the past 100 years. What is there to be worried about? It will be little short of miraculous if the Federal Reserve manages to finesse a soft landing for the economy The US will emerge relatively unscathed as it invariably does. Indeed, what’s surprising is how well the US economy is holding up. ![]() The spin is that none of what has happened thus far – least of all the collapse of a small number of regional US banks – should come as a surprise.
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