US Economy Outperforms, Validating Hawkish Fed

US Economy Outperforms, Validating Hawkish Fed

The US economic expansion picked up in the fourth quarter, data out Thursday showed. The 6.9% rate represented a pronounced acceleration from the prior quarter's pace, and easily topped forecasts. Consensus expected 5.5% on the headline (figure below). The range, from nearly six-dozen economists, was 4% to 8.3%. Inventories played a big part. "The increase in real GDP primarily reflected increases in private inventory investment," the government said. Inventories "are expected to remain a
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7 thoughts on “US Economy Outperforms, Validating Hawkish Fed

  1. We are still in a market that is coming back to a reboot. Inventory rebuilding was the big story. That is not a sustainable source of growth. The underlying economic structure is in the process of adjusting- you can bet the idea of just in time inventory management is being changed to something that is more resilient. It will be interesting to see what happens when the prop of government spending is reduced and monetary policy is “adjusted”. No recession now, but 2023 may be in play. Policy error is a significant risk.

  2. Speculating that Fed may want aggressive tightening in early 2022, when inventory rebuild, excess savings, state govt surpluses, labor shortage, other factors are still tailwinds. While they are, in practice, limited in how much they can actually execute in 1H, they can magnify the impact by frontloading hawkish communication, so the market executes for them. It seems they expect pandemic and supply chain improvement effects to come in and help in 2H.

  3. I still have trouble understand how even the Fed keeps pointing at strong consumer balance sheets. Shouldn’t they be called “Individual” balance sheets rather than “consumer” balance sheets since the excess savings they keep pointing at are mostly in the hands of people who will not spend it?

    1. Inequality is a crafty bitch, or, so it seems. Once it bestows it’s blessings the captivated host becomes it’s unwitting propagator. The process has many variations and outcomes, but, most of them are fairly well covered here,

      https://en.wikipedia.org/wiki/Ophiocordyceps_unilateralis

      Not to worry though, the Quants are pretty sure YTD economic/market performance is just a small matter of the system being displaced from its equilibrium condition and it just needs to be allowed to respond to the forces that tend to restore equilibrium. So don’t mind the vibrations. That’s why they put seatbelts in orbital launch vehicles. Note, seatbelts serve a rather different function in cars.

  4. Hopefully. under the radar, US is making immigration available to some Taiwanese people (and their wealth). Long term/big picture, growth in the US economy depends on births and immigration.

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