What’s next for the U.S. economy? Spin the wheel to find out. Apollo Global Management’s chief economist Torsten Slok on Monday observed that the Atlanta Fed’s estimate for third quarter GDP growth stood at a whopping 4.9 percent. But another recent estimate from the St. Louis Fed was pointing to an economic contraction of 0.25 percent (the regional bank has since revised that estimate into slightly positive territory). The divergence in regional Fed estimates reflects crosscurrents that are confounding Washington policymakers, Wall Street and consumers alike. They suggest “the economy is booming or the economy is growing really slowly,†Slok told your host Monday afternoon. “It’s really remarkable how all over the place they are.†With the Fed expected to hold rates steady at its meeting this week, the data that Chair Jerome Powell and other policymakers use to measure economic health “are pointing in all directions,†he said. Or, to put it more bluntly, nobody really knows what’ll happen next. Larry Summers made a similar point when he spoke with Sam and Zach in an upstairs office at the Peterson Institute for International Economics (moments before delivering a lengthy critique of President Joe Biden’s trade and economic policies. “The news has been relatively good for the last few months, but there are still substantial risks— both on the overheating side and for a possible slowdown towards recession,†the former Treasury secretary said. “Declarations of victory are substantially premature.†What factors might cause inflation to rebound? — Health insurance costs were at the top of Summers’s list. The Wall Street Journal earlier this month reported that employer plan costs are expected to climb by 6.5 percent next year — the largest increase in years. Premiums on Obamacare plans tracked by KFF and the Peterson Center on Health Care are expected to climb by around 6 percent. — Wage growth remains strong — something that Summers and Fed officials have repeatedly identified as a factor in rising prices — and the labor market remains tight. — Meanwhile, home prices are climbing as consumers scrap over limited inventory. Rising gas and commodity prices elevated the consumer price index last month and the United Auto Workers strike — as well as its influence on labor movements in other sectors — could also create inflationary headwinds. But the real economy faces risks, Summers said. The outlook for consumers is uncertain. Covid savings have eroded as the net worth of American households rebounds. There’s a wall of corporate debt maturing that will need to be refinanced at higher rates, which would put a strain on investment. And credit conditions could deteriorate as regional banks take steps to lower their risk profile. To the extent there’s a slowdown in credit, “there's no certainty that it necessarily translates into disinflation rather than to stagflation,†Summers said. “There's more grounds for optimism than before but it's still a very long road before we can declare that this episode is over,†he added. IT’S TUESDAY — What other economic crosscurrents should we explore? Send tips, gossip and suggestions to Sam at [email protected] and Zach at [email protected]
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