Rosenberg: Rising Real Rates Are Hitting the Economy

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.