Since the end of 2009 nominal growth has been higher than nominal rates (aside from the first half of 2020, when the covid-19 pandemic crashed the economy). Now America is about to cross the threshold. In the first quarter of 2023, despite annualised real economic growth of only 1.1%, troublesomely high inflation meant that nominal gdp rose at an annualised rate of 5.1%, roughly in line with today\u2019s federal funds rate. A panel of economists surveyed by Bloomberg, a data firm, anticipate that in the second quarter of the year growth will slip to just 0.4% and inflation to 3.3%. Nominal growth is forecast to be just 3.7%\u2014well below nominal rates of around 5.2%.<\/p>\n
\u201cThis is when the rubber really meets the road for the economic cycle,\u201d notes Carl Riccadonna of bnp Paribas, a bank. \u201cThis is the point at which, if you\u2019re a business, your revenues are now growing more slowly than your cost of financing.\u201d Wage growth will lag debt growth. Government debts will grow faster than tax receipts. A single quarter of this might be bearable. Unfortunately, economists expect the situation to last a year or more.<\/p>\n
The precise impact depends on the extent to which debt reprices as interest rates rise. The vast majority of American homeowners have 30-year fixed-rate mortgages. This generous financing will protect them against a pincer-like combo of slowing wage growth and rising interest expenses. Nevertheless, consumers carrying other kinds of debt\u2014including revolving credit-card balances and private student loans\u2014will feel the pinch.<\/p>\n
Read it all<\/a>.<\/p>\n Welcome to a bad time for big debts https:\/\/t.co\/fPcefvWCrY<\/a><\/p>\n — The Economist (@TheEconomist) May 25, 2023<\/a><\/p><\/blockquote>\n \n