Mike Giordano, CFP®
The bizarreness of today’s economy continues. We seemingly have one that’s resilient to rate rises. It’s today’s Teflon Don, a nod to the former New York mob boss, John Gotti, who seemed to evade prosecution time and time again.
You could argue today’s economy is more insulated from higher rates because both consumers and companies locked in low rates a couple years ago. Yeah, but they didn’t lock in what they’ll need forever. At some point, they’ll need to borrow more. At some point, they’ll need to refinance. But, it’s difficult predicting the exact timing of that refinancing.
Nonetheless, as rates have floated up dramatically in the last couple months, we’d expect to start seeing the economy begin to cool…even slightly.
There are signs that’s happening, but no definitive case that we’re on a glidepath to a more sustained level. Then, this week, we saw outright reacceleration—a greater number of job openings and a blowout number of job gains. Including revisions on past months, more than 400,000 jobs were created.
And, all of that job strength came with only a modest tick up in hourly earnings for workers. So, we’re seeing high demand for workers without high labor expenses which could reignite inflation. If it holds, that’s the perfect combination for the soft landing. Maintaining those conditions, though, seems highly implausible.
So, are these strong labor reports good for the economy? In the short term, yes. Only a mean-spirited fool wants to see unemployment rise and people get laid off. The problem with strengthening job growth at this point is that it will likely keep interest rates high. And, that has the potential to choke off future growth in the economy.
It’s kind of like a basketball team playing faster than their long-term capabilities. They may score quickly, take an early lead. But their speed is not sustainable. They’ll eventually wear themselves out and give back all their gains and then some. Hopefully, that doesn’t happen for the economy. But, that’s the risk the longer the job market stays hot and interest rates remain elevated.
Mike on the Money on WYFF News 4
This week’s segment focused on those higher interest rates and how you need to factor them into your financial decisions.
We looked at what higher rates mean both if you’re investing money or borrowing money.
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that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance project and operations. Owners of bonds are debtholders, or creditors, of the