Rosenberg: Rising Real Rates Are Hitting the Economy
Speakers
David Rosenberg
— President, Rosenberg Research
Summary
David Rosenberg discusses why rising real interest rates alongside slowing economic growth are a dangerous combination. He explains the consumer spending/income wedge, the risk that spending mean-reverts if the stock market and savings rate stop supporting it, and why bond yields may not fall unless risk premiums ease. The main market implications are caution on stocks and bonds.
- Real interest rates are around 2.5% while real economic growth is slowing.
- Consumer spending has held up despite weak income growth because the stock market is rising and the savings rate is falling.
- A stall in the stock market or a halt in the savings-rate decline could cause spending to mean-revert toward income.
- That spending pullback would reinforce excess aggregate supply versus demand and act as a negative economic shock.
- Bond yields may not decline even if inflation expectations fall if the risk premium does not ease.
- The combination of rising real rates and slowing growth is framed as a negative shock for the U.S. economy.
Ideas
Stock market stall could reverse consumer spending.
Rosenberg argues that if the stock market stops rising and the savings rate stops falling, consumer spending will mean-revert toward income, reinforcing excess supply over demand and acting as a negative shock; this makes the stock market a key downside trigger to monitor.
Treasury yields may stay elevated.
Rosenberg says Treasury yields may not decline even if inflation expectations fall because the risk premium may not ease, leaving bond prices exposed while real rates rise and economic growth slows.
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Speakers: David Rosenberg · Tickers: SPY, TLT