Unexpected Growth in US Economy

Amidst the Federal Reserve’s assertive campaign of raising US interest rates, the US Economy grew in Q2 of 2023 and has shown remarkable resilience. The US reported an unexpected 2.4% annualized growth rate from April to June 2023. This strong performance indicates a rebound from a 2% growth rate in Q1, exceeding economists’ predictions of a 1.8% growth rate.

Balancing Act: Consumer Spending and Business Investments

Despite a slowdown in consumer spending growth, the slack was picked up by vigorous business investment in both inventories and fixed assets.

Federal Reserve Actions: Taming Inflation

In efforts to curb inflation, the Federal Reserve has:

• Raised the benchmark interest rate to a 22-year high
• Seen a decrease in the consumer price index from over 9% in June 2022 to just 3% in the last month
• Simultaneously, unemployment rates hover near record lows, and consumer confidence is on the rise.

Optimism and Concerns: The Fed’s “Soft Landing”

The strength of the US economy has sparked quite some optimism among investors and economists. The consensus is that the central bank could achieve the uncommon success of a “soft landing”— curbing inflation without significant economic damage. However, concerns remain regarding the economy’s resilience potentially complicating the achievement of the Fed’s 2% inflation target.

Fed Chair’s Remarks: Balancing Inflation and Growth in a volatile US Economy

Fed Chair Jay Powell emphasized that the central bank’s primary aim is to navigate towards the inflation target without inducing a significant downturn leading to extensive job losses. However, he highlighted that stronger growth could potentially fuel higher inflation requiring careful monitoring and appropriate monetary policy response.

Market Reactions: Bond Yields and S&P 500 Index

Post the data release, yields on US government bonds experienced a slight increase, while futures tracking the S&P 500 index reported a very modest 0.8% increase.

Overall, the latest news underscores the importance of portfolio diversification and once again highlights the role alternative assets can play in buffering against the fluctuations of the traditional markets.