Aside from the US stock market – which is being propped up by a handful of big name stocks and a serious dose of AI fever – most risky assets have struggled over the past month or so. We don’t think that owes much to the back-and-forth swings in sentiment around the US debt ceiling. Instead, we think two key, opposing, forces have been at play. One is the continued resilience of US activity data, which have suggested the economy might avoid a recession. The other is the pressure this puts on the Fed to keep policy tight, prompting investors to re-embrace the ‘higher for longer’ narrative. Over the past month or so, the latter force seems to have dominated, partly because it puts downward pressure on valuations but perhaps also because it raises the risk of the US economy buckling under higher rates further down the line.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services