Five charts to start your day

The US consumer shrugs off rising borrowing cost

Good morning! I hope you enjoyed your weekend. We've got quite a bit to cover today. There's this chart that everyone's talking about and it seems to be causing a bit of confusion. Take a look at it below.

Source: Barchart

So, what's all the fuss about?

In short, the “real” Fed funds rate hit a 23-year high.

When people talk about "real" interest rates, they're looking at not only what the Fed charges banks to borrow money, but also what it is adjusted for inflation.

When prices for goods and services go up (inflation), the "real" interest rate goes down, and vice versa. Lately, this "real" rate has hit the highest point in 23 years. This means it's getting more expensive to borrow money when we consider the cost of living.

Subsequently, investors are worried that rising real interest rates are not good and this might put pressure on the Federal Reserve to cut rates.

But the economy is doing just fine

The problem is that it’s not so simple. The US economy is actually doing really well. It grew by 3.1% last year, which is way more than what people thought it would (they were expecting almost no growth). And even though the economy isn't growing quite as fast as it was in the middle of last year, it's still pretty strong.

The US job market is thriving, and consumer confidence is exceptionally high. Currently, consumer spending is remarkably robust and this has helped support US economic growth.

So yes, real interest rates are rising, and so is the cost of borrowing. But it appears that the US economy can handle this quite well, so this probably won’t compel the Federal Reserve to cut rate imminently.

Coming up:

• Cash is now a more attractive alternative than stocks

• The US equity risk premium falls to a 23-year low

• Nuclear generation is forecast to reach a record high in 2025

• Germany expects to see its first drop in electric vehicle sales in eight years

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