If you would have told me a year ago — when inflation was at about 9% and the Fed had just begun its first of nearly a dozen rate hikes — that the US economy would be not only expanding but thriving in the middle of 2023, I would have (respectfully) called BS.
A "soft landing" was a fantasy that no one would have bet on. And yet, the optimists of the moment say, it's now the most probable outcome.
See here: Gross domestic product, the broadest measure of economic output, grew by an annualized rate of 2.4% in the second quarter, the Commerce Department said Thursday. That was a faster pace than in the first three months of the year and was also well above economists' expectations of 1.8%, my colleague Bryan Mena writes.
Businesses are growing; consumers are still spending, albeit slightly less last quarter than they were at the start of the year; unemployment is near its lowest level in a half-century; the stock market is booming; and all those R-word doomsday-ers in the econ group chat have gone quiet today.
Even the reliably cautious crew of economists over at the Federal Reserve say they no longer expect a recession in 2023.
Given all the momentum that has repeatedly defied expectations this year, it's tempting to declare victory.
But — I'm sorry, there has to be a but — it's still too soon to pop the champagne.
As the New York Times' Jeanna Smialek writes today: "Interest rates are like a slow-release medicine given to a patient who may or may not have an allergy. They take time to have their full effect, and they can have some really nasty and unpredictable side effects."
Side effects may include: a sudden and nearly catastrophic liquidity crisis in the banking sector, as we saw this past spring. Although interest rate hikes weren't the sole reason for the crisis, they were certainly a spark. As one analyst told me at the time: "Everyone on Wall Street knew that the Fed's rate-hiking campaign would eventually break something."
The banking crisis, thankfully, has largely been contained. But it's worth remembering how close to the edge we came before federal officials intervened to prop up the sector.
Bottom line: The economy is still in uncharted territory — emerging from a once-in-a-generation pandemic, absorbing unprecedented supply shocks, adapting to a consumer whose spending priorities have shifted dramatically, and, of course, grappling with the most aggressive series of interest-rate hikes in modern history.
Economists and market analysts are like tour guides who've read a lot about mountaineering and are trying to lead us up Everest in the middle of a blizzard, in the dark, without a map.
SEE ALSO: 'Barbenheimer' has been such a hit that the movies' impact appears to be showing up in economic statistics.
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