The financial world is about to split apart. Perhaps “divergence” is a better term for what is about to happen. Even that sounds over dramatic. I’m not forecasting a meltdown so much as a direction change. While we battle with inflation here in the U.S., other countries are seeing their prices subside to a point that the central banks of several nations will begin lowering interest rates in June. Not us.
Domestically, our outlook for a rate cut is mathematically now improbable until September (3.9% shot in May, 16.4% in June, and 42.7% in July). The challenge we face here in the Land of the Free is that we’re not afraid to spend money. On everything. Where higher interest rates in other countries have led to a cautious reduction in sovereign spending and citizen consumption over the last few years, we’ve remained largely unphased. In fact, our federal government is deficit spending $10B every single calendar day.
I’m not pointing fingers here. True to by birth country, I like spending money I’ve earned as much as any other red-blooded American. OK, maybe any other American who’s not blowing through taxpayer money. Maybe just compare me with the your average Joe who spends his or her own money on regular stuff. I like driving cars and wearing clothes and eating food. Nothing crazy; I’m not buying a fully stocked orangutang enclosure or anything. But I do like nice cars, food, and clothing.
Next week, the Bureau of Economic Analysis will tell us how much more we’re currently spending when compared to the same tine last year. That number, known fondly as PCE, is projected to come out at +2.7%. The Personal Consumption Expenditures Index is the Fed’s (our own central bank) favorite measure of inflation. Last week’s more pedestrian polls extrapolated inflation somewhere in the high 3’s, so a reading in the high 2’s by the illustrious PCE will be a welcome assurance that we may see rates reversing lower sooner than later.
