8/10/2023 0 Comments Goldilocks economy roadblocks![]() ![]() ![]() There are unseen risks out there - that we ignore at our peril.Įach of us will have our own list of three bears.The absence of the bears does not mean they do not exist.This has supported high equity valuations, low bond yields and narrow credit spreads.īut as David Skilling reminded us recently, the Goldilocks story is not complete without the three bears.And financial markets see this happy scenario as self-reinforcing, sustained, and accommodated over multiple years.Many analysts have characterised the current configuration of healthy growth, low inflation, and easy financial conditions as a Goldilocks scenario: a global economy that is chugging along, not too hot, not too cold. Let me share with you what I see as the three bears that might return to spoil Goldilocks’ happy stupor.My “papa bear” is inflation “mama bear” protectionism and “baby bear” financial instability.On conventional wisdom, he should be making an appearance by now. Historically, inflation comes from high wage growth in a tight labour market during the late stages of the business cycle - a relationship economists describe as the Phillips Curve.Cyclical conditions are now tight in major economies, especially in the US.US unemployment rate has fallen to 4.1%, well below the Fed’s estimated Non-Accelerating Inflation Rate of Unemployment (NAIRU) of 4.6%.Yet, wage growth has remained at around 2.5%, below the pre-crisis average of 3.5%.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |