Stumbling Toward a Deal — as the Economy Surges
Author: Greg Valliere
April 16, 2024
CONGRESS IS STUMBLING TOWARD PASSAGE of legislation late this week that would provide enormous aid to Ukraine, Israel and Taiwan. It’s a VERY messy process — typically — that has obscured the major development for financial markets: red hot economic growth, far exceeding expectations.
WE’LL GET TO THE CONGRESSIONAL BRAWL in a second, but first — dramatic economic growth is having a major impact on interest rates, with the Atlanta Fed GDP Now predicting economic growth at 2.8%, after yesterday’s blowout retail sales report.
EVEN CHINA, considered a basket case a few months ago, is blasting off — with Beijing reporting 5.3% first quarter economic growth.
WITH THE U.S. TEN YEAR BOND YIELD now above 4.5%, this has to be a shock for the Federal Reserve, which may be frozen for months to come — unable to cut rates as long as the economy is growing above trend with inflation not falling to the Fed’s 2% goal.
THERE SURELY WON’T BE ANY FISCAL RESTRAINT, as Congress moves awkwardly toward passage of a nearly $100 billion spending package for allies.
THIS IS A VERY FLUID fluid environment — even a Tik-Tok ban is included — with House Speaker Mike Johnson preparing four separate bills in a dizzying process that may require support from Democrats — which could cost Johnson his job.
BOTTOM LINE: This is sausage-making at its ultimate, as Democrats prepare to bail out Johnson, as angry right wingers demand provisions to protect the border, and as aid seems increasingly likely — surely for Israel, probably for Ukraine. It’s only Tuesday, there’s a long way to go; details won’t come into focus for a few more days.
IN THE MEANTIME, THE ECONOMY CONTINUES TO ROAR — it’s too strong, in our opinion, to be sustainable.
THESE DRAMATIC STORIES MAY HAVE TO TAKE A BACK SEAT as the gleeful media is obsessed with the Donald Trump trial. The buzz after the first day was whether Trump dozed off yesterday during the jury selection process, Our advice to Trump — get some espresso, the last thing you want is opponents calling you “sleepy Don.”
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