The global economy is expected to enjoy relatively solid growth even as emerging markets tumble and the trade wars escalate. But rising real interest rates and a strong dollar are beginning to complicate the relationship with risky assets. Economic expansions may allow real rates to rise and risky assets to perform well. But rising rates that prompt global volatility or overeager central banks that raise rates more than warranted may cause risky assets to tumble. A strong U.S. economy has buoyed equity markets and prompted rate increases. Still, to the rest of the world, especially emerging markets, tightening dollar liquidity is an exogenous shock.

President Trump recently hailed the strength in U.S. consumer confidence. Strong growth, rising stock markets, and a plentiful job supply have lifted confidence levels among households. However, we are beginning to see a substantial gap between two confidence measures: The Conference Board and the University of Michigan. The disparity points to weaker-than-normal wage gains and spending despite a strong labor market. Over in the eurozone, inflation is beginning to reflect the rise in global energy and food prices. Core inflation is forecast to increase later this year and in early 2019 as wage growth improves.


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The global economy is expected to enjoy relatively solid growth even as emerging markets tumble and the trade wars escalate.