The U.S. economy experienced its most rapid growth in almost two years with GDP rising 4.9% at an annual rate in 2023’s third quarter. Consumer spending fueled the growth. However, Northwestern Mutual Wealth Management CIO Brent Schutte warns a recession could still be on the horizon, noting “the full impact of rate hikes have not hit yet” leaving us with “backward-looking data.”
Schutte believes rising rates on auto loans, credit cards, and student debt will soon “erode the consumers’ condition.” While recent data is strong, he cautions headwinds are gathering as higher borrowing costs work through the economy. With mortgages comprising two-thirds of consumer debt and many on fixed rates, Schutte says consumers have been “largely insulated” from rate hikes thus far.
“Every time the Fed raises interest rates you risk having a deeper recession because we don’t know, and I don’t think you’ve seen the full impact already of the five-and-a-quarter of rate hikes we’ve already had,” Schutte tells Yahoo Finance, adding: “So still a mild recession, but certainly with risks to the upside if the Fed keeps hiking.”
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