Quick thoughts on the US economy and equity markets
This past week, I have been focusing on the US economy and the Fed’s reaction function. I would summarize my view as positive about the cyclical trajectory of the US economy but concerned about so-called secular stagnation due to high private debt levels and low wage growth. I am also concerned that cyclical policy was so heavily geared toward monetary policy that it has caused a wide gulf between interest rates compatible with sustainable asset inflation and interest rates compatible with full employment and stable consumer price inflation. As the economic cycle could end soon, this dichotomy is coming to a head in the form of earnings weakness. Some brief comments follow below.