Illustration of the polar jet stream. Public Domain. Source: NASA/Goddard Space Flight Center
A few months ago, I flew from LA to Boston and the flight took a lot less time than I anticipated. The reason was the polar jet stream had shifted south, and our ground speed was over 100 miles per hour faster than normal. The jet stream can make your average airliner perform much better than expected.
Recently, Fed Chair Jerome Powel, Vice Chair-select John Williams, and FOMC member Lael Brainard all described our economy as enjoying tailwinds. The long-term issues that have been holding growth back have shifted. What was holding us back is now helping the US economy speed up. Specifically, global growth is strengthening. That has increased demand for American exports and pushed foreign currencies higher, boosting the foreign earnings of US companies.
In addition, global financial conditions are supportive. There’s no Euro crisis or banking crisis or troublesome bond vigilantes. The most disruptive development in the capital markets lately was Deutsche Bank replacing its CEO. While global interest rates are rising, they are doing so gradually. The Chicago Fed’s National Financial Conditions index shows that we’re still in a benign environment.
Source: Chicago Fed
Finally, recent tax cuts and additional government spending will are generating significant fiscal stimulus. As a result, real economic growth – stuck at 2 percent for so long – should rise to 2 ½ percent, or even higher. These tailwinds are generating a healthy expansion across a broad range of sectors: consumers, healthcare, energy, and technology. It’s hard to design autonomous cars if the economy isn’t generating enough money to fund the research.
Tailwinds are great, when you have them. They help airliners get to their destinations ahead of time using less fuel. But they’re less helpful when you come in to land. Those tailwinds can generate a lot of turbulence. Be careful, then, if the Fed tries to generate a soft landing. It could be a bumpy ride.
Amelia Earhart’s Lockheed Vega, which she flew in the global jet stream. Source: National Air and Space Museum
Douglas R. Tengdin, CFA
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