What HOPE Tells Us About Where The Economy Is Headed

What HOPE Tells Us About Where The Economy Is Headed
Stéphane Renevier, CFA

11 months ago1 min

Interest rate hikes don’t impact the entire economy all at once. They tend to strike different segments of the economy one after another, rolling across them with a lag: housing is the first to slow down, followed by new orders, companies’ profits, and finally employment. You can remember that sequence using the acronym “HOPE”.

And so far, that’s exactly how things have played out, as you can see in the chart. Housing peaked in the US in November 2020 – a few months after the Fed began aggressively hiking interest rates to try to bring down the country’s high inflation – and has collapsed since then. New orders peaked in March 2021, and have collapsed since then. As for profits, they peaked more recently, in June, meaning they’re likely still just at the beginning of their downward adjustment. And while employment remains healthy, the HOPE framework says it’s the next – and final – domino to fall.

Now, the framework itself doesn’t say much about the magnitude of the slowdown. But it does offer a crucial reminder: the economy hasn’t yet fully digested the Fed’s aggressive rate hikes. So, while there are reasons to be excited about falling inflation, it’s important to remember that the economy isn’t out of the woods yet.



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