Riding on Air

Is our economy enjoying economic tailwinds right now?

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

Charter Trust Company

“The Best Trust Company in New England”

By |2018-04-13T07:00:49+00:00April 13th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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