For all that resilience, though, high rates are now squeezing the US economy. Consumer spending, the key growth-driver, rose just 2pc during the first three months of this year, down from at least 3pc growth during previous two quarters. Big ticket household spending – on goods such as furniture and appliances – dropped 1.9pc, the biggest quarterly fall since the Covid pandemic.
Signs of consumer distress are growing – as rents, grocery and food prices keep rising, and bad debts are now sharply on the increase. Maybe that’s why polls consistently show that around half of American voters now wrongly believe that the US is in recession – with the majority blaming the Biden administration for their economic woes.
The US economy is growing quite well – yet many think it’s shrinking. There’s no feelgood factor, despite the stock market gaining 24pc in 2023 and 12pc this year, with unemployment at a near 50-year low.
That just shows the extent to which cost of living crises linger and are blamed on incumbent governments – even if they’re sparked by a global pandemic and energy prices fuelled by overseas wars. It’s a reality facing Biden – as well as Rishi Sunak.
Having raised rates to their current peak last year, the Fed then signalled it planned to lower borrowing costs three times in 2024. But as US inflation has endured, that vital first cut – signalling way beyond America that the global interest rate cycle has turned – has been repeatedly pushed back. Traders are betting the first US rate cut won’t now come until November, after the US vote is done.
Elections to the European Parliament this month are expected to see heavy gains among Right-wing populist parties –causing angst in many quarters. And with Trump’s legal travails sparking a wave of campaign donations, and a boost in the polls, this flow of political pyrotechnics will soon become a flood.
But when it comes to the US economy – and rates in particular – we’ll soon see if inflation endures, possibly aggravated by rising energy prices, or if slower consumer spending brings down price pressures after all.
That will determine when US rates fall, which will then heavily influence rate-setters in the UK too. I can’t see the MPC lowering rates before the Fed – because to do so would weaken sterling, risking more inflation via dearer imports.
On that basis, if US borrowing costs aren’t cut before November, UK rates won’t be shifting from their current peak either.