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Bloomberg News / Landov
It's over, except screaming. Interest rates are rising. And up to. And up to.
This is what a booming economy will do. Households and businesses are the most confident for years. Consumer spending and business investment are strong. And years of steady recruitment have pushed the unemployment rate to the lowest level since 1969 – 3.7%.
The reward? Higher borrowing costs for consumers and businesses.
The economy is doing so well that the Federal Reserve has embarked on the path of raising at least 3% of the US policy rate in the short term, pushing it to the highest rate in more than 10 years. This will increase the cost of all kinds of other loans.
Of course, interest rates are still low, but if you do not act quickly, this mortgage, auto loan, or small business line of credit will be more expensive. The Fed is on track to raise interest rates by December.
But it's not just the strength of the economy that is pushing the Fed to act. What comes with rapid economic growth is inflation, the boredom of central banks.
The latest readings on this week's inflation are not going to trigger alarms, but they are likely to say the trend is still on the rise.
In particular, the consumer price index, or cost of living, is expected to increase by 0.2% in September. This index tracks all US expenditures each month: rent, food, gas, medical care, clothing, transportation, etc. The report will be released Thursday.
An increase of this size should keep the annual rate of inflation around the current level of 2.7%. This is above the Fed's preferred 2% range, but well below what is considered a threat to the economy.
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Consumer inflation is a bit lower if we eliminate the volatile categories of food and energy (2.2% in the last 12 months).
What is less clear is where inflation is going.
Some economists insist that it will continue to rise and will soon exceed the 3% mark for the first time since 2011, forcing the Fed to raise interest rates even more quickly and threatening its pace. expansion.
Others suggest that prices could stabilize between 2% and 3%, unless there is another major oil shock or other unusual trigger. Hence the economic nirvana: steady growth and stable inflation – the dream of central banks everywhere.
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For the moment, the Fed can wait for the time. Inflation has stabilized in recent months to give it even more leeway.
"There is nothing in the inflation data that would make the [Fed] feel compelled to "speed up" rate hikes, "said Regions Financial Chief Economist Richard Moody.
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