Summercamp in Jacksonhole
For most people, the holiday season is almost over, but central bankers are only now going to summer camp. This weekend they have their annual meeting in Jackson Hole, USA, where they share their views. This time the topic is the impact of monetary policy on the economy and also the investment world such as the $SPX500 and $NSDQ100. There is plenty to say about that.
If you look at the current situation, the policy seems to have little effect. The Fed has raised its policy rate very quickly and by a lot: in just fifteen months it went from 0% to 5.25%. We have to go back a long way in time to see such a strong interest rate increase from the Fed. Yet there is hardly any sign of weakening economic growth.
How useful is such an interest rate policy actually? Isn't it a bit like pulling a monetary string and does the interest rate actually change a company? For example, the Fed raised interest rates from 1% to 5.25% in the period 2004-2006, but the recession did not occur until 2008. And even then, you can still wonder whether that was really the result of the higher interest rates. The credit crisis was mainly caused by the burst housing bubble. The higher interest rates were at most the burning match to the fuse of the housing market.
There are several explanations. To start with: it always takes a while before the impact on the economy is visible. For example, if the interest rate on your credit card rises, you do not immediately start spending less money. And the number of consumers who decide not to buy a new car because the interest rate has now become really too high is limited. The percentage who say that it is a bad time for such a purchase is currently just as high as in 2021, when the Fed had not yet done anything at all about the interest rate. However, the number of Americans who can no longer pay their credit card debts at $V (Visa) and $MA (Mastercard) and car loans is growing.
Another important explanation: the percentage of homeowners with a long fixed interest rate period has increased enormously. Of course, they are no longer moving, because that would mean that their mortgage payments would increase enormously. This will lock up the housing market, but it also ensures that these consumers are not affected by rising interest payments, while this was the case in previous interest rate cycles. They can therefore spend their money on other things, which limits the economic impact of an interest rate increase. In the meantime, I have made a small investment in $HPP (Hudson Pacific Properties Inc), which has skyrocketed by 15% due to the stress on the real estate
The central bankers will probably come out with the same conclusions, but it will sound a lot more important. Or have they also found other explanations? Maybe we should plan next year's vacation in Jackson Hole. Perhaps we will become a little wiser from it. An economic summer camp like that seems quite interesting to me........ Show More
