For the whole of last year, the US economy – the world’s biggest – has repeatedly defied predictions that higher interest rates, designed to tackle inflation, would lead to waves of layoffs and probably a recession.
Starting in March 2022, the mighty Federal Reserve jacked up benchmark US borrowing costs eleven times, to a 23-year high of 5.25-5.5pc, making borrowing much more expensive for businesses and households.
But the US economy has continued to grow regardless, with last quarter’s expansion powered by strong consumer spending, energy exports and business investment – not least in real estate and high-tech.
The States has grown for six successive quarters at an annual rate above 2pc. During a historic sharp interest rate upswing, that’s an exceptional performance.
At the same time, despite steady GDP expansion, US inflation has steadily cooled. After peaking at 9.1pc, the latest data shows America’s consumer price index 3.2pc up last month compared to February 2023 – relatively benign but still above the Fed’s 2pc target.
It seems increasingly likely that US policymakers, unlike their UK counterparts, have achieved the hallowed “soft landing” – fully overcoming inflation without triggering a recession. How did this happen?
One reason is America’s famously flexible jobs market. While high inflation and the cost-of-living crisis have hit many US households, a strong demand for labour has helped maintain…
