For several years, the U.S. economy has produced a “Goldilocks” combination (neither too hot nor too cold) of solid growth with limited inflation. The absence of price pressures, even at very low levels of unemployment, has surprised many observers.
It may be too soon to conclude that Goldilocks has left the building, but recent economic and market readings suggest that she may at least be glancing toward the door. Inflation indicators have been rising, prompting a corresponding increase in long-term interest rates and a correction in equity prices. These developments have been seen globally, suggesting the U.S. experience is not an isolated incident.
For now, we’ve made only modest changes to our outlook. The most prominent of them is our updated expectation that the Federal Reserve will raise interest rates four times this year as inflation approaches its targeted level. But we think it is premature to make more substantive changes on the basis of a handful of trading days and data points.
Following is a discussion of recent developments.
Key Economic Indicators