The writer is chief global strategist at BCA Research
If one places a warm glass of water in a freezer, its temperature will steadily decline. Eventually the water will freeze, turning from a liquid to a solid. Nothing new needs to happen to generate this “phase transition”. All that is necessary is for the temperature in the freezer to remain below zero degrees Celsius.
Now replace “temperature in the freezer” with “the level of interest rates”. The US economy is cooling in response to tight monetary policy, as evidenced by falling inflation and wage growth. It has not frozen over yet because it was running so hot two years ago. But if the economy’s temperature keeps falling, it will freeze over.
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