Intense Battle Between Rates, Growth, and Inflation...The Decisive Factor Is 'Oil Prices'[Weekend Money]

U.S. Real Economy Absorbs Monetary Tightening Shock
Corporate Profits Reach Highest Share in 60 Years
Key to Resolving Prolonged High Rates Lies in "Energy Prices"

As the U.S. economy continues to demonstrate solid growth despite prolonged high interest rates, analysts are forecasting that "international oil prices" will become the main factor determining the future direction of financial markets.

According to iM Securities on October 4, the U.S. Personal Consumption Expenditures (PCE) price index for August came in below market expectations, while the core PCE price index for August rose by 0.2% month-on-month, slightly under the expected 0.3%. However, analysts caution that it is too early to conclude that U.S. inflationary pressures are easing based solely on the August figures. This is because the year-on-year increase in core PCE prices was the same as in July, and the so-called "super core PCE," which excludes energy and rent, surged by 0.36% from the previous month—a significant jump compared to July's 0.07%.

Notably, the August data did not fully reflect the recent rise in prices of certain energy products such as diesel. The average monthly price of West Texas Intermediate (WTI) crude oil in September jumped 16% to $95.70 per barrel, compared to $82.50 in August. This is expected to place considerable upward pressure on the Consumer Price Index (CPI) and PCE prices for September, which will be released in the future.

Meanwhile, the momentum behind the growth of the U.S. real economy remains strong enough to counter the shock of high interest rates. The final real gross domestic product (GDP) growth rate for the second quarter reached 2.2%, which is 0.7 percentage points higher than the preliminary calculation, thanks to upward revisions in private investment and consumer spending. The nominal GDP growth rate also rose by 0.5 percentage points to 8.5% compared to the preliminary figure. The fact that nominal GDP growth is outpacing the level of high interest rates indicates that the U.S. economy is absorbing the effects of monetary tightening.

In terms of corporate earnings, the profits of non-financial corporations amounted to 9.8% of nominal GDP in the second quarter, reaching the highest level since 1966. This shows that the corporate earnings cycle remains robust even amid a high interest rate environment.

Park Sanghyeon, an analyst at iM Securities, stated, "There is an intense tug-of-war between interest rates, growth, and prices," adding, "Although it is fortunate that growth momentum is being maintained despite high interest rates, it is hard to ignore the risks associated with a prolonged high interest rate environment." He went on to say, "Interest rates need to come down from current levels, and the catalyst for this should be stability in oil prices, rather than an economic slowdown."

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