Cessation of interest rate increases by the central banks of America and Europe at different heights, 4% in the Eurozone and 5.25-5.50% in the US, but also, above all, in a different situation regarding the pace of economic activity. It is perhaps something that not many have commented on, although of course the conditions are not the same. In Q3_2023 the Eurozone economy at an annual level showed just +0.1% while America +4.9% helped mainly by consumer spending but also the continued good performance of its labor market. Especially the latter generates incomes as the participation of the labor force in the labor market has fully recovered with mainly female employment at its peak.
Although 4.9% is naturally not sustainable and a downward adjustment of the growth rate is definitely expected in the coming months, it is nevertheless something completely new that the American economy does not feel the increase in interest rates, while at the same time the rate economic growth is above its long-term trend. This is probably explained by the US economy being less bank-centric than the Eurozone economy. The effects of tight monetary policy can be seen mainly from the rise in the financing costs of companies through the increase in corporate bond yields. The effects of this phenomenon will be seen more in small and new businesses, which are more affected by the rise in borrowing costs.
Inflation moves to 3.7% for September (4.1% structural inflation), without a recession and an increase in unemployment. One could say that such inflation despite being beyond its target is possibly normal given the strength with which the economy is spending. However, the coming months will show where the relationship between inflation and economic growth will eventually balance. However, there are now valid indications that the stagnation of globalization and especially the change of the global supply chain has favored the USA. A number of productive and particularly industrial activities are returning to the US boosting economic activity and incomes. Certainly, the expansionary fiscal policy has played its positive role in economic growth. In any case, all this allows for the time being inflation to decline, in a context of intense economic activity without negative effects on the labor market, i.e. without substantially increasing unemployment.
