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Rising rates could challenge economy next year

Friday, Dec 20, 2013 - 02:18

Dec. 20 - U.S. economic growth expanded at its fastest pace in two years during the third quarter, bolstering confidence of a strong finish in 2013, but rising rates top a list of possible challenges facing the recovery in 2014. Conway G. Gittens reports.

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The U.S. economy is heading into the end of the year with the wind at its back. Growth in the third quarter was upwardly revised - again, hitting 4.1 percent, the fastest stride in just about two years. Business and consumer spending was stronger than originally thought. But all that could be threatened if an unruly bond market emerges in 2014, and that's at the top of the worry list for Moody's Analytics' John Lonski. SOUNDBITE: JOHN LONSKI, CHIEF FINANCIAL MARKETS ECONOMIST, MOODY'S ANALYTICS (ENGLISH) SAYING: "I think the biggest risk right now is that Treasury bond yields overshoot as the Fed begins to taper quantitative easing. It is conceivable that the 10-year Treasury yield perhaps runs well above a level that the U.S. economy can tolerate and as a result, we have a slow down by interest sensitive spending as well as lower equity prices." And how much that slows down the housing recovery and passes through to the overall economy is another concern. SOUNDBITE: JOHN LONSKI, CHIEF FINANCIAL MARKETS ECONOMIST, MOODY'S ANALYTICS (ENGLISH) SAYING: "I think that could very well take growth from roughly 2-1/2 percent down to 2 percent. I don't know if it is enough to precipitate a recession. We are in pretty good shape in terms as far as credit quality is concerned. But I would become worried. I would become concerned if in conjunction with fewer than expected home sales we observe a softening of home prices." Add to the list - Washington. Even with a bi-partisan budget in place, mid-term elections are only months away, meaning politics will be a big economic challenge, warns strategist Clark Winter. SOUNDBITE: CLARK WINTER, FOUNDER, WINTER ENTERPRISES (ENGLISH) SAYING: "Now that we've run out of the ability to stimulate either fiscal or monetary - in fact fiscal is going to be less stimulative with higher taxes and monetary can't get any easier, it's going to be about the third leg, which is political and geopolitical. Geopolitical situation doesn't have any immediate dark horses on the horizon as far as global economic policy - the issue is in the United States: will they actually agree to let people go on and get to work or will everything become handled by the electoral politicians." The first test comes early in the year with the White House already warning the Treasury will run out of borrowing ability by late February/early March, unless Congress lifts the debt ceiling; something lawmakers have bitterly fought against in recent years.

Rising rates could challenge economy next year

Friday, Dec 20, 2013 - 02:18

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