After inflation drops the Fed raises interest rates

The Fed’s First Rate Announcement: Why the Fed is Trying to Get It Wrong, and Why It’s Not Worth It

Higher rates slow inflation by cooling consumer demand and allowing supply to catch up, paving the way for more moderate price increases. But in the process, they slow down hiring, weaken wage growth, prompt job losses and ripple through financial markets in sometimes disruptive ways.

Higher borrowing costs have already put a big dent in the housing market. Other parts of the economy are starting to slow. But consumers, still flush with cash saved up early in the pandemic, continue to spend money. As a result, the Fed may have to tap the brakes harder, for longer, than it otherwise would.

Many economists warn of a dire danger or overdoing it, and a United Nations agency warned of the damage it could do to poorer nations. Developing economies had already been dealing with a cost-of-living crisis because of soaring food and fuel prices, and now their American imports are growing steadily more expensive as the dollar marches higher.

Market volatility and financial stability has been made worse by the Fed’s moves as higher rates elevate the value of the U.S. dollar.

The Fed isn’t acting alone, it’s just one of nine central banks expected to make a rate announcement this week. The path between high inflation and recession is a global concern as central banks throughout the world are dealing with economic problems of their own.

But a few weeks ago, I sat next to a woman on an airplane. She described herself as knowing “zero” about the economy and then proceeded to ask me whether I thought the Federal Reserve would continue raising interest rates to help fight inflation.

At this point, we should be interested in the Federal Reserve. The fate of the country may be decided by the Fed’s actions currently and in the coming months, because of big shifts happening in our economy.

The central bank is charged with a dual mandate: maximize employment (check) and ensure price stability (uncheck). The Fed doesn’t want everyone to lose their jobs, it wants them to keep their jobs, so the consumer prices won’t go up as much. Powell still thinks it is possible, but most economists think the chances of that are now remote.

The Fed is told to watch and protect both areas because they are the most important elements to a strong economy.

“Economic security depends on both jobs and stable prices. Together, these two pillars form the foundation for everything else,” Mary Daly, head of the San Francisco Federal Reserve Bank, said in a recent speech at Boise State University.

It is usually when shopping for a favorite item that they realize they are paying more for items than they normally would. Jeff Smith, 54, who works in marketing in California, remembers the first time inflation hit him.

The level of inflation hits everyone. It is particularly difficult on the most vulnerable in society. “The toll…” lands hardest on those with low and moderate incomes,” she said. “This corroding of real wages is more than just painful. It also undermines the basic American promise, which says that if you work hard, you can get ahead. Inflation traps people in an endless loop of running fast and falling behind, unrelated to effort or input.”

The Smith Family’s Sunday Breakfast: When Inflation started to Fall, and Prices Declined During the First Month of the Millenium

Smith and his wife have four children and Smith says they often like to have a big Sunday breakfast together and he will sometimes buy cinnamon rolls as a treat. “It’s something I have bought periodically for years and it was eight bucks for a package of six cinnamon rolls.” He immediately felt it was about double what he had typically paid. He said it felt dramatic.

The Smith family had not done anything differently or gone out of their way to be different and the prices of their regular purchases had just risen and it had added up quickly. Smith and his family cut out eating out and going on road trips to see relatives because of the cutbacks.

“My kids complained, ‘We, didn’t do anything this summer!'” he said. “They were right and it was largely because gas that used to cost us, you know, maybe $150 to travel somewhere now costs three or $400.”

People and businesses have less money to spend, demand goes down and prices go down after the Fed raises interest rates.

The Federal Reserve has lifted its target range for interest rates from near zero to between 4.5% to 4.75% over the past year in their fight against inflation. The pace of their hikes slowed to a quarter of a percent in February from half a percent in December. The inflation rate reached a 40-year high but then began to fall. The January inflation data showed that prices increased once again.

The result: a big economic shock. The economy fell into a terrible recession, unemployment spiked to 11% and people and politicians unleashed all kinds of wrath onto Chair Volcker. But Volcker was totally focused on bringing inflation under control. Inflation did come down, after it worked, and it was because of it. The economy took years of pain, and millions of people lost their jobs.

In a good- is-bad economy, higher wages lead to higher inflation as companies raise prices to make up the difference. Investors worry that a strong jobs report could fuel Fed officials to accelerate their rate increase campaign.

Inflation, Jobs, and the Labor Market: What Powell’s Call to Code Defeasibility Needs Before We Get Off the Rails

He is believed to have made the call in code. The Federal Reserve has a history of leaving everybody to try and understand things, like tie color choice, and leaving them to use code to communicate.

This summer, Powell dropped a bombshell, saying: “We are taking forceful and rapid steps to…keep inflation expectations anchored. We will keep going until we are certain that the job is done. As unexciting as that might seem, for Fed-watchers, this moment was a veritable fireworks spectacular, and code for choosing to fight inflation just like Volcker who battled inflation at the cost of millions of jobs and a recession. Volcker’s book was called ” Keeping at It”.

Powell said in a press conference on Sept 21 that he was willing to take some pain from a slower economy and softening of labor market in order to be able to deal with inflation.

Hopefully the inflation report that’s coming this Thursday will show prices coming down and if unemployment stays low, the dual mandate will never have to duel. We can all have our cinnamon rolls and pay for them too if we complain about legroom on the plane.

Mr. Biden said the report showed “some progress” in combating the increases, noting that costs have climbed by less over the past three months than they had in the prior three months. He acknowledged that inflation continued to be high.

Officials suggested that they would take a break after making three large rate increases. The inflation data could make it impossible for the Fed to slow down by the end of the year, according to economists, as the fresh inflation data makes another big move more likely.

“In order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will likely be necessary,” said San Francisco Fed President Mary Daly at Princeton University on Saturday. “Absent a substantial pickup in the share of working-age adults looking to be employed or a large change in immigration flows, labor force participation will continue to decline and worker shortages will persist, pushing up wages and ultimately prices, at least in the near and medium term,” she added.

A path to a soft landing is open, based on recent data that showed a necessary slowdown in key areas of the economy, but which prompted Yellen to optimistically say that a recession is likely at some point in the next year.

But Yellen agreed with the President’s assessment that the economy remains strong, standing out in comparison to how other economies around the world are fairing.

Gross domestic product — the broadest measure of economic activity — rose by an annualized rate of 2.6% during the third quarter, according to initial estimates released Thursday by the Bureau of Economic Analysis. In the first three months of the year, the decline was 1.6%, and in the second quarter it was negative 0.6%.

The American economy is strong as hell – but what has Biden’s top economic officials really done? A brief look at Yellen’s visit to Cleveland

But Yellen’s view also underscored the complex balancing act President Joe Biden and his top economic officials have attempted over the course of this year, as they seek to highlight a rapid economic recovery and major legislative victories while also pledging to tackle soaring prices.

It is a reality that has made it less likely for the administration to take advantage of what they view as a strong record. Biden, asked about the economy last week, told reporters it’s “strong as hell,” drawing criticism from Republicans.

Yellen also acknowledged frustration inside the administration that the efforts to pull the US economy out of crisis haven’t received the credit officials believe is merited.

Many American families could have faced difficulties and there were a few problems we could have had. These are not problems that we have because of what the Biden administration has done. It’s usually not credit for problems that don’t exist.

Yellen traveled to Cleveland as part of an administration push to highlight the major legislative wins – and the tens of billions of dollars in private sector investment those policies have driven toward manufacturing around the country.

It is an important piece of an economic strategy designed to address many of the vulnerabilities and failings that were laid bare in Covid 19 and with huge federal investments in infrastructure and shoring up key pieces of critical supply chains.

At least one major private sector investment like the Intel plant opened a few hours drive outside of Columbus is real tangible investment happening now, even as she acknowledged they would take time to fully take effect.

Not every community will get repaired bridges, but they will come online very soon. Many communities are going to see roads improved, bridges repaired that have been falling apart. Money is flowing into research and development which is very important for the long-term strength of the American economy. She predicted that America’s strength will increase and that we will become a more competitive economy.

Source: https://www.cnn.com/2022/10/27/politics/janet-yellen-gdp-recession-cnntv/index.html

Why the Debt Ceiling needs to be raised, and what it will take to get rid of: Reply to Powell and Yellen at the White House

The battle lines that have been drawn this week over raising the debt ceiling and the Washington crisis of its own makes that House Republicans have once again pledged to use for leverage should they take the majority.

The debt ceiling needs to be raised. Powell said that it was the only way out. “And if we fail to do so, I think that the consequences are hard to estimate, but they could be extraordinarily adverse, and could do longstanding harm.”

As the administration moves toward a time period that traditionally leads top officials to leave an administration, she made clear she did not plan to be one of them. Asked if she had told the White House that she wanted to stay, she said it was an accurate read.

“I feel very excited by the program that we talked about,” Yellen said. I see in it great strength of economic growth and addressing climate change. I want to be a part of that.

It is expected that the Federal Reserve will raise its federal funds rate by just half a point at the end of its two-day policy meeting on Wednesday as it pulls back on its aggressive stance as signs start to emerge that inflation may be easing.

Greg McBride, chief financial analyst at Bankrate, said that the interest rates have risen at a whiplash-inducing speed. “It’s going to take some time for inflation to come down from these lofty levels, even once we do start to see some improvement.”

After hitting a four-decade high of 9% in June, annual inflation dipped to 7.1% last month, according to the government’s latest scorecard. In the past 11 months, it has been the smallest annual price increase.

The Fed and Wall Street Job Numbers in the U.S. from Rate Increases to 2022: Instability, Hiring, and Layoffs

Esther George, president of the Federal Reserve Bank of Kansas City, said that there is still a bit of a savings buffer in households that may allow them to spend in a way that keeps demand strong. “That suggests we may have to keep at this for a while.”

Like her colleagues on the Fed’s rate-setting committee, George has expressed a determination to control inflation. She’s cautioned against raising rates too fast at a time of economic uncertainty.

“I have been in the camp of steadier and slower [rate increases], to begin to see how those effects from a lag will unfold,” George said last month. I’m worried that a succession of very large rate hikes might cause you to oversteer and not be able to see the turning points.

“We are taking the only measures we have to bring inflation down,” the Fed chairman told Warren. “Will working people be better off if we just walk away from our job and inflation remains 5-6%?”

Shawn Woods of Kansas City said his company sold a dozen houses a month before the Fed started raising rates.

“I wouldn’t have guessed we would go from 3% to 7% in six months,” said Woods, president of Ashlar and the Home Builders Association of Kansas City.

“I think we’re in for some rough times over the next six or eight months,” Woods said. Housing leads us into downturns and it leads us out of downturns. And I think from a housing perspective, we’ve probably been in a housing recession since March or April.”

Wall Street will get the last jobs figures for 2022 on Friday morning. Economists predicted that the US government would report that 200,000 jobs were added in December. The 263,000 jobs that were added in November, would be a decrease.

It is surprisingly resilient to hiring. The unemployment rate is low because the economy created 263,000 jobs in November and it’s 3.7%.

Take the monthly JOLTS survey to find job vacancies, quits and layoffs. Tuesday’s report surprised economists, who had predicted that the number of job vacancies in the United States would fall amid measures by the Federal Reserve to slow business growth in order to tame inflation. But instead of dropping to 10 million, it surged to 10.7 million.

Even if interest rates do not go up much next year, economists are expecting a recession because of the high interest rates. Powell said in November that there is still a chance the economy avoids recession but the odds are slim, noting: “To the extent we need to keep rates higher longer, that’s going to narrow the path to a soft landing.”

Unfortunately for Democrats trying to hold on to power next week, the pain of inflation appears to be outweighing any positive sentiment about job security. According to a new CNN poll, three-quarters of likely voters already feel like the country is in a recession.

Baby Boomers Aren’t Ready to Buy Their First Home: Real Estate Impact of Mortgage Rate Increases and Neighborhood Zoning Restriction

There’s more bad news for young people trying to buy their first home. The typical age of a first-time homebuyer is now a record 36 years old, up from 33 last year.

Baby Boomer parents with large investment portfolios are happy to give up some of their stock gains to their kids.

Those who managed to close on a home in the crush of competition should be extremely lucky as the housing boom ends due to low mortgage rates.

The National Association of Real Estate reported on Thursday that first-time buyers made up just 26% of the people buying a home in the last year, a record low.

They have to save in order to pay for things like student debt and child care, according to Jessica Lautz, the vice president of demographics and behavioral insights. Home prices are increasing while mortgage rates are going up.

Mortgage rates have risen throughout most of 2022, spurred by the Federal Reserve’s regime of interest rate hikes. The Fed said last week that it would raise its interest rates by another 75 basis points, the sixth increase this year and the fourth in a row.

Housing is broken. I don’t purport to have a silver bullet, but it’s clear that inventory constraints and outdated zoning restrictions are a big part of the problem.

Rather than rebuilding within existing neighborhoods, housing supply has expanded through “sprawling single-family subdivisions at the urban fringe.” There will be more people and homes in areas which are prone to wildfire.

It is a good time for federal and local governments to rethink the way in which they frame the American Dream. Those who will benefit the most from that will be those who are represented in office. As Schuetz argues, the upper-middle class Boomers in power now are, understandably, reluctant to change the system that got them where they are.

The First Mile in a Marathon: The Fed is Getting Better at Rates, But It isn’t All Bad News: The Economy Is Back in Business

The Fed has increased rates by about 75% in the past four meetings. That followed two smaller rate hikes earlier this year. The central bank’s key short-term interest rate, which sat at zero at the beginning of the year, is now at a range of 3.75% to 4%.

Basis points are how central bankers talk about rate moves. One basis point = one-tenth of a percentage point.)

It’s not all bad news: The first mile in a marathon matters. The latest report shows that the economy is in good shape and that a soft landing, where inflation eases without a recession, is still possible. That’s also good for markets.

The Fed would absolutely love for everyone to keep their jobs and just see some “softening” in the labor market — a slowdown in wage growth, say, or a drawdown in job openings.

Putting a Stock on the Wall: An Investor’s Perspective on Financial Markets After a Soft Inflationary Moonshine

A version of this story first appeared in CNN Business’ Before the Bell newsletter came out. Not a subscriber? You can sign up right here. You can listen to the audio version by clicking the link.

Stocks surged on Thursday in their best day since 2020 after a key inflation indicator came in softer than expected. Investors broke out their party hats as they interpreted the report to mean that peak inflation may finally be behind us. That means the Federal Reserve could be less aggressive with its rate hikes.

Financial markets are not sure of the forecast. Despite warnings to the contrary from Fed officials, many investors think that the central bank will soon start cutting interest rates. The expectation of lower borrowing costs is one reason the stock and bond markets have rallied in recent weeks.

The previous times there had been a so-calledCrypto winter, it had been. Despite being volatile over the past couple of years,bitcoin prices have done better than stock market indexes.

Unfortunately, those assets have gotten hit just like stocks and bonds, proving there really is no place to hide in a market where worries about rate hikes and recession reign supreme.

Bitcoin Prices Since the Covid-Era: A Long Journey through the Dry Phase of Financial Inflation, and Their Expectations for Rate Increases

A thaw for the coin. The Covid-era saw a lot of investors from large institutions and near-zero interest rates. It reached a new high of over $70,000 in November.

Then, central banks started raising rates to fight inflation, and the dollar strengthened significantly, seducing investors as the ultimate safe haven. At the same time that the economy soured, new investors who viewed it as a risky asset sold out in droves.

Just look at bitcoin prices since the summer of 2020. Even though it has been a rocky ride, they are still up more than 80%. The market is only up a small percentage from the July 2020 levels.

Because of this drastic change in the cost to finance a home, sales have dropped for eight months running, according to the National Association of Realtors. The survey from Fannie Mae shows that a majority of people think it’s not a good time to buy a home.

As of Monday, markets are expecting the Fed to make another quarter-point raise: The CME FedWatch Tool is showing a 69.4% probability of such a hike; however, the perceived chances of a half-point increase (at 30.6%) have grown considerably during the past few weeks. One month ago, the probability for a half-point increase was 3.3%, according to the CME FedWatch Tool.

The Fed hopes that inflation pressures are starting to abate enough that they can focus on a series of smaller rate hikes to avoid a recession.

The November Consumer Price Index Revisited: Are U.S. Consumers Taped Out of the Inflationary Era?

But it may not be that simple. The Producer Price index, which measures wholesale prices, rose 7.4% over the 12 months through November. That was a bit higher than the expected rate of 7.2% but a marked slowdown from the 8% increase through October.

The November Consumer Price Index data is due Tuesday, just a day before the Fed announcement. The inflation rate was 7.7% through October.

“Inflation has probably peaked but it may not come down as quickly as people want it to,” said Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research.

According to Jones, the Fed will raise rates by half a point this week, but may be willing to raise them just a quarter point in early 2023. She conceded that the Fed was making it up as they went along.

Wednesday: Fed meeting; EU industrial production; UK inflation; earnings from Lennar

            (LEN) and Trip.com

            (TCOM)

A pivot is not a cure for the market according to the co-chief Investment officer at Truist Advisory Services. The rate cuts might be too late. Recession risks are still relatively high.”

The US economy isn’t in a recession yet. But are American shoppers tapped out? We’ll get a better sense of that Thursday after the government reports retail sales figures for November.

So it’s possible consumers were simply getting a head start on holiday shopping. Inflation has an effect on the numbers too, since retail sales have been impacted (positively) by the fact that people have to spend more money for stuff.

Everybody has been discussing inflation this year. Going forward, it will be more about disinflation in 2023 or 2024,” said Arnaud Cosserat, CEO of Comgest Global Investors.

Implications of a High Inflationary Rate for Consumer Finance and the Credit Reporting Firm, Darden Restaurants and Winnebago

What does that mean for investors? Cosserat said people should be looking for quality consumer companies that still have pricing power and can maintain their profit margins. He said his firm owned two stocks: a luxury goods maker and a cosmetics giant.

Friday’s topics include: Eurozone manufacturing activity; UK retail sales and earnings from the likes of Darden Restaurants and Winnebago.

It’s possible that even if the Fed stops hiking rates, they will remain elevated for at least 11 months.

The European Central Bank and the Bank of England are expected to follow the US in making a half-point rate move on Thursday. Mexico, Norway, Taiwan, Japan, and the Philippines will all increase their borrowing costs this week.

The hike, less than the previous ones, comes after the latest government reading showed inflation is running at its lowest annual rate in a year.

“It’s clear there is more work to do,” Daly said in a speech at Princeton University. Further policy tightening is necessary to put this episode of high inflation behind us.

Many Americans, already contending with price increases in nearly every part of their lives, are feeling the effects as they pay more in interest on credit cards, mortgages and car loans. According to the credit reporting firm, used car buyers pay the largest monthly payments on record because of the lower interest rate they’re charged.

Central Bank of Japan: Inflationary Puzzles After a Three-Year Low-Yang Mills Rate in the Space-Time Bubble

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the central bank said in a statement on Wednesday.

The announcement of a rate increase caused the stock market to fall, as the Fed warned that there are more hikes to come. The major indices were mostly flat by the end of the day.

The Fed believes the worst of shelter inflation may be behind us. Increases in market rents have slowed since spring.

The price of haircuts rose 6.8% in the last twelve months, while the price of dry cleaning jumped 7.9%. Services other than housing and energy account for nearly a quarter of all consumer spending.

Inflation and the Supply Chain of the Labor Market: What has been changed in the United States Economic and Social Services since the First Russian Invasion of Ukraine

Powell said they see goods prices coming down. We are aware of what will happen with housing services. But the big story will really be the the rest of it, and there’s not much progress there. And that’s going to take some time.”

The labor market is a reflection of how the swine flu affected the US economy and labor supply. He said that the labor force participation rate has declined due to the increase in demand.

The central bank has made it clear it will do whatever it takes to bring inflation back down, and on Wednesday it raised interest rates for the seventh time in nine months.

Since Russia’s invasion of Ukraine, gasoline prices have plummeted, and are now lower than before. The prices of other goods like used cars and televisions have fallen, as pandemic kinks in the supply chain come untangled. And travel-related prices for things like airplane tickets and rental cars have dropped, as the pent-up demand that followed lockdowns has faded, and travelers become more price-conscious.

“I don’t think there’s any question that we do not yet have inflation on a secure glide path anywhere near down to the 2% [Fed target] level,” Summers said. It is going to have to be tightened rather than easing until the Fed is confident of that.

The central bank reduced its forecast for economic growth and raised it for unemployment. But Powell says there’s considerable uncertainty.

“I’m not sure if anyone knows whether or not we’re going to have a recession or not,” he said.

Can the Fed Stop a High-Secondary Recession… and What Happens to the Gas Station and the Grocery Store?

Changes in the weather or the war in Ukraine could cause big swings in prices at the gas station and the grocery store. The price of crude oil and other commodities could go up or down because of slower economic growth.

What happens to wages affects the price of services. That depends in turn on how many jobs the country adds each month, how many workers are available to fill those jobs, and how productive workers are when they’re employed.

What might happen: “Boy the Fed is really committed to this put us in a high unemployment recession thing,” Jon Stewart, former host of The Daily Show, tweeted after Wednesday’s meeting.

“I think it’s a really, really narrow path, and the Fed’s tone [during its December meeting] doesn’t give me a lot of optimism that they can navigate that without hitting a recession. … If a soft landing is avoiding a recession altogether, then I think that’s a pretty tough task. If it is a milder recession than the last one, I think it is still possible.

The jobs data is likely to deteriorated meaningfully and swiftly, says a finance professor from the Wharton School of the University of Pennsylvania in his weekly commentary.

Powell was positive about a soft landing and the labor market was still tight enough to ward off an increase in unemployment. The investors will look closely at jobs numbers.

Bankman-Fried is due to appear in a Bahamian court on Monday to change his mind about facing charges in the US

According to a person with knowledge of the situation, Bankman-Fried is expected to appear in a Bahamian court on Monday to change his mind about facing charges in the US.

Last Tuesday, federal prosecutors from the Southern District of New York charged Bankman-Fried with eight counts of fraud and conspiracy. Bankman-Fried would face up to 115 years in prison if he was found guilty of all eight charges against him, though the maximum sentence wouldn’t be taken into account.

On top of that, US market regulators filed civil lawsuits accusing Bankman-Fried of defrauding investors and customers, saying he “built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto.”

The busiest shopping day before Christmas is called Super Saturday. With Christmas Day falling on a Sunday, and Christmas Eve falling on the preceding Saturday, Super Saturday this year is on Dec. 17th. A total of 158 million consumers are expected to shop that day, according to the National Retail Federation.

Shoppers have only completed half their gift purchasing so far, the NRF estimates. Drop-dead shipping deadlines approaching and less than a week to go until Christmas Day, people have a lot more buying to do.

Source: https://www.cnn.com/2022/12/19/investing/premarket-stocks-trading/index.html

Inflationary Trends in a Service-Sector Economy: The First Five Years of Consumer Choice, Incentive Increases, and Jobs Increased

Retailers sitting on an oversupply of merchandise can cost them money. Retailers who store merchandise in their own warehouse and distribution centers have a finite amount of space to work with, with some wiggle room to accommodate excess inventory. If more space is needed for a long time, the costs add up.

Over time unsold products lose value. If the trend has passed, savvy shoppers don’t want to buy last year’s style. Stores are then forced to heavily discount, which impacts profitability.

Well ahead of the final full weekend before Christmas, stores this year were already offering discounts of 50% to 60% off, and tacking on free shipping for online orders.

“I’ve studied the holiday season for 20 years and haven’t seen discounting so dramatic,” said Ross Steinman, professor of consumer behavior at Widener University in Chester, Pennsylvania.

“Retailers are very nervous,” he said. “The clock is ticking and they know they have to maximize every opportunity now to get consumers to make purchases.”

The Federal Reserve’s preferred measurement of inflation showed price increases continued to moderate in November, providing yet another welcome indication that the period of painfully high prices has peaked.

The core PCE was up 4.7% annually and 0.2 on a monthly basis, matching expectations of economists.

The PCE inflation indexes have risen at a lower rate in the last year than in the previous year, following declines in other inflation measures.

Spending increased in November but was at a slower rate than it has been in previous months. Spending was up in November as compared to the previous month. Personal income increased by 0.4% in November, down from 0.7% in October.

The November PCE report provided a snapshot of an economy in transition. Tasked with reining in the highest inflation since the early 1980s, the Fed has undertaken a series of blockbuster interest rate hikes to squelch demand.

However, inflation within the services sector has been a little “sticky,” and not abating as quickly. Friday’s PCE report showed the services index posted a monthly increase of 0.4% – unchanged from October’s rate – and a year-over-year increase of more than 11%, Faucher noted.

The Fed is worried that wage growth could increase service prices and overall inflation because most of the services inflation is due to housing costs.

The December Outburst of Manufacturing Activity in the U.S. After the Great Depression and the Decline of the Consumer Confidence Index

A separate Commerce Department report released Friday showed that new orders for manufactured goods tumbled 2.1% in November, the biggest monthly drop since the onset of the pandemic.

The decline was due to new orders for non-defense aircraft and parts. New orders increased 2% without transportation.

“Core durable goods orders slowed but did not contract, reflecting growing unease about the economy,” Diane Swonk, chief economist for KPMG, tweeted Friday after the report’s release. Manufacturing activity has begun to contract and the prelim reading for December suggests it will contract further at the end of the year. The manufacturing sector is likely to have a cold winter.

The final December reading for the index of consumer sentiment was up slightly from a preliminary measurement of 59.1 and November’s final reading of 55.8 according to the university’s Surveys of Consumers.

The outlook for the economy may have improved, but it remains relatively weak. The sustenance of robust consumer spending is dependent on continued strength in incomes and labor markets.

The Conference Board’s consumer confidence index, a measure of how consumers are feeling about the economy, landed at its highest measurement since April 2022, earlier this week.

America’s central bank was the subject of a lot of attention during the past year, as it was used by the Fed to curb inflation.

As 2022 draws to a close, inflation metrics show some of that may have worked: Consumer prices are cooling, home sales have ground to a halt, and some of America’s best-known companies have made plans to slow their roll and pull back on capital investment.

That means the Fed, with its “laser focus on the job market,” could be “continually hawkish” at the start of 2023, said Ross Mayfield, investment strategy analyst at Baird.

Powell said in December that a structural labor shortage is still a major headwind, blaming it on early retirements, Covid illnesses, and deaths.

Employers aren’t hesitant to lay people off and other parts of the economy are in better shape than others, which makes it easy for unemployed people to get rehired quickly.

“It’s been pretty impressive how well the consumer has held up over the past 18 months, and not pulling the rug out from under the consumer is pretty much how you get to the soft landing,” Mayfield said.

The Next Fed Meeting: The Stock Market Has A Bad Week Since 2008, and Gas Prices have Bounded Above $5 a Gallon per Gallon for the First Time

Below are the meetings tentatively scheduled for 2023. Those with asterisks indicate the meeting with a Summary of Economic Projections, which includes the chart colloquially known as the “dot plot” that shows where each Fed member expects interest rates to land in the future.

The stock market was in a bad place during that time, with roughly 20% of the S&P 500 and 39% of the Nasdaq going down. The major US markets have had their worst years since 2008.

First-timers applied for unemployment benefits last week at 225,000, an increase from the previous week. That’s still low historically and almost exactly where jobless claims were a year ago, long before recession fears emerged.

“This is one reason to the be optimistic the economy could skirt a recession,” Moody’s Analytics chief economist Mark Zandi told CNN on Thursday. “Without mass layoffs, it’s unlikely consumers will stop spending and the economy suffer a downturn.”

After spiking above $5 a gallon for the first time ever in June, gas prices have plunged. The national average for regular gasoline recently dropped to $3.10 a gallon, an 18-month low, though it has crept higher in recent days to about $3.22 a gallon.

Premarket Stocks: Implications for Wage Growth, Suppression of Inflation, and Wall Street’s Uncertainty

Now, the key risk to the economy is not that the Fed sticks to its guns and keeps rates near current levels. Keeping rates elevated could increase the risk of a recession, but it won’t be very severe. Rather, the key risk is if inflation stops declining. That would require substantial further monetary tightening in order to get it under control, and would have more serious implications for the US economy and financial markets.

Still, traders have been glued to economic reports even more than usual as of late, and stocks have been incredibly choppy based on what the latest figures indicate about inflation.

Wednesday’s weaker than expected report on the health of the manufacturing sector, coupled with more signs of strength in the jobs market given the solid report about labor turnover, led to more market volatility.

That’s why investors will also be poring over the weekly jobless claims numbers that come out Thursday morning as well as a report from payroll processing company ADP

            (ADP) about the private sector job market. Further strength could set off more alarm bells about inflation and Fed rate hikes.

Wage growth will be looked at. An increase in compensation tends to lead to inflation. Consumers can afford higher prices if they have more disposable income.

Wage growth, which is measured by hourly earnings, rose 4.7% over the previous year, but investors were happy with that. Wage growth increased to 5.1% in the month of November. Economists are predicting that wage increases cooled a bit, to 5% annually, in December.

Lauren was the economist and portfolio strategist at New York Life Investments.

Worker pay is likely to be the focus of the Fed in the Friday jobs report. Wall Street may do the same.

Source: https://www.cnn.com/2023/01/05/investing/premarket-stocks-trading/index.html

Amazon Hiring, Jobs, and the Economy: Why Do We Need Our Jobs? A Note from Andy Jassy to His Employees in the Early 2000s

As I reported, Amazon and Meta Platforms are among a growing number of tech firms that have recently announced job cuts. Amazon

            (AMZN) confirmed late Wednesday that it was laying off more than 18,000 employees.

The hope was that businesses would continue to spend money on tech products and services as the economy rebounded from a brief recession.

Tech companies have realized that they may not have taken inflation and rate hikes into account while budgeting as recession alarm bells are sounding once more.

In his recent note to his employees, the co-CEO said that the company hired too much people ahead of the economic downturn.

“Companies that last a long time go through different phases. They’re not in heavy people expansion mode every year,” Amazon CEO Andy Jassy said in a memo shared with employees.

The economy is not out of the woods. Many, including the head of the International Monetary Fund, are still concerned about a looming downturn that could hit China and emerging markets particularly hard.

Anna says investors in Europe are growing more confident that the pace of consumer price increases is starting to slow. A drop in energy prices is leading the pullback.

Source: https://www.cnn.com/2023/01/05/investing/premarket-stocks-trading/index.html

The November 12 pandemic ended with price increases in the UK, but prices remained high during the December 19th epoch of food sales

The British Retail Consortium said in a report that food prices went up in December. The number of items consumers bought in the four weeks ending on December 25 fell by 1%, despite the fact that UK grocery sales hit a record.

Editor’s Note: Steven Kamin is a senior fellow at the American Enterprise Institute (AEI), where he studies international macroeconomic and financial issues. He served as director of the international finance division of the Federal Reserve from 2011 to 2020. His own opinions are included in this commentary. View more opinion on CNN.

Price pressures are likely to continue to ease as remaining supply-side bottlenecks are resolved, the economy slows in response to the rise in interest rates, and labor markets tighten as a result.

Measures of inflation expectations derived from financial markets and based on household surveys have moved down since last year but remain above pre-pandemic levels Perhaps more importantly, since the beginning of the pandemic, wages have barely kept up with rising prices, whereas labor productivity has risen about 4%.

Workers did not receive compensation for increases in productivity. The consequence, as acknowledged by Fed Vice Chair Lael Brainard, is that “the labor share of income has declined over the past two years and appears to be at or below pre-pandemic levels, while corporate profits as a share of GDP remain near postwar highs.” Wages might be rising more rapidly than prices going forward if workers regain their share of corporate income. Firms should be able to absorb wage increases by reducing profit margins, and that should help the Fed reduce inflation.

The decision, at the conclusion of the Federal Open Market Committee’s first meeting of 2023, comes after months of jumbo-sized rate increases intended to cool the economy, and marks the return to a more traditional interest-rate policy.

He said it may be the case that rates have to be raised more if there are strong labor market reports or inflation reports.

Powell echoed that sentiment Wednesday, saying: “I continue to think that it is very difficult to manage the risk of doing too little, and finding out in six or 12 months that we actually were close but didn’t get the job done.”

The Fed of the US Economy: Implications for the First Four Months of Inflationary Growth and the Outlook for Next-Generation Wall Street

US markets jumped following the press conference, indicating the investors expect a more dovish Fed going forward. The S&P 500 closed up 1.1% on the first day of the new year after having its best January in four years.

The Fed’s preferred inflation benchmark, “core” prices, were 4.4% higher in December compared to a year ago. The annual rate was 5.2% in September.

“We do not want to be head-faked like we were in 2021,” Fed governor Chris Waller said two weeks ago. “Back in 2021, we saw three consecutive months of relatively low readings of core inflation before it exploded in our face.”

The US economy added more than 500,000 jobs in January, which was not expected by Powell. It shows you why we think it will take a long time.

Powell said that the disinflationary process has begun. He stated that price gains within the services sector remain high.

Powell expects housing inflation to come down by the middle of this year but is keeping the closest watch on a metric within the Personal Consumption Expenditures report: Core services excluding housing.

The S&P and the tech-ladenDow were both down in early afternoon trading, but then rose for a while during Powells discussion.

The job total for January was heavily influenced by seasonal factors and economists said it was probably too hot for the Fed to like. The robustness of the labor market has stood somewhat at odds with the Fed’s efforts to lower inflation.

He said, “We had a 3.5% unemployment in the labor market in the last two years, with inflation barely getting to 2% and wages going up for the low end of the spectrum.” We want to get back to that place.

If your heart goes pitter patter when central bankers discuss inflation (you know who you are on Twitter!), then this may be the best Valentine’s Day ever. Four members of the Federal Reserve (although not Fed Chair Jerome Powell) spoke on the economy today.

Thomas Barkin isn’t a voting member of the Federal Open Market Committee this year. Barkin said in an interview that inflation has become normalized, but it is still rising, and that it is coming down slowly.

The problem is trying to predict future economic data. She said that it is hard to have confidence when inflation is higher than forecasts and the jobs report is more than expected.

Fed President Patrick Harker: Expected Growth, Job Openings, Hirings, and Expansions in the Next Few Days

Philadelphia Fed President Patrick Harker sounded a little more dovish (i.e. less concerned about inflation) than Logan. He also is an FOMC voting member this year. Harker said in a speech that rate hikes are likely to be close, but added that we are not done yet. Harker noted that “at some point this year, I expect that the policy rate will be restrictive enough that we will hold rates in place.”

John Williams is currently the President of the New York Fed and his name has been mentioned as a possible replacement for Lael Brainard, who is expected to be named the new top economic adviser by President Biden.

Williams said there will likely be a period of subdued growth and some easing of labor market conditions. He said he expected real GDP growth of just 1% this year and that the unemployment rate will “edge up over the next year” to between 4% and 4.5%. The jobless rate is currently 3.4%.

A lot of jobs data coming in the next few days could lead to market swings, so Wall Street investors are getting ready for that.

The private payroll report for the month of February and the job openings, hires and quits report for the month of January are expected Wednesday. On Thursday, Challenger, Gray & Christmas are set to release their job cuts numbers for February, and Friday brings the main show — the Labor Department’s monthly employment report.

What have Wall Street and Fed Been Since the First Presidential Referendum in November? A Senior Economic Policy Advisor at Vanguard, February 22, 2008

The senior US economist at Vanguard said they were stuck in the middle. “Activity has weakened in the most interest rate-sensitive sectors of the economy, but core areas are still showing resilience. Rates have not worked through the economy in this in-between period.

Hirt said he expects the unemployment rate will likely climb from its current 54-year low, albeit slowly and modestly, to around 4.5% to 5% by the end of this year.

Wednesday: European Central Bank President Christine Lagarde is to speak, February ADP Nonfarm Employment Change, Federal Reserve Chair Jerome Powell is expected to testify on economic outlook and monetary policy before the Joint Economic Committee, February JOLTs Job Openings; earnings from Brown Forman, Campbell Soup and MongoDB.

The president’s budget is typically used as a guideline for Congress to help shape spending priorities for the year ahead. Wall Street investors will likely look over the document in order to see what debates will be coming down the pike.

Biden has said his budget will increase taxes on the rich in order to offset increasing costs for medicare and social security. The president also proposed a “billionaire” tax last year. Increased taxes on capital gains and on corporate stock purchases have been a source of angst for Wall Street.

High inflation and the policy action taken by the Fed to bring it down have caused panic on Main Street. “The responses range from fearing these actions will tip the economy into a recession to fearing they won’t be enough to get the job done,” she said.

High inflation levels in goods, housing and other sectors along and strong economic data, she said, has led her to question the momentum of disinflation.

Bostic and Waller: Why do we need a Fed that isn’t going to lie? “The Roadrunner is coming,” Warren warned last week

Atlanta Fed President Raphael Bostic also said Wednesday that he believes the Fed needs to raise its policy rate by half a percentage point at the next meeting.

On Thursday, Fed Governor Christopher Waller warned that painful interest rates could go higher than expected, citing a slew of recent stronger-than-expected economic data.

It could possibly mean a “Wile E. Coyote moment” for the US economy, according to economist Larry Summers, referencing the cartoon dog’s futile pursuit of the Roadrunner.

But in the weeks following that meeting, there was a barrage of surprisingly strong economic data, showing blockbuster job gains, hearty consumer spending and unyielding inflation.

If the fed funds rate goes from 4.5% to 5.5%, he would be amazed, but if it goes to 6 percent, he would not be surprised.

The warning, in testimony before the Senate Banking Committee, comes after a series of economic indicators that indicate the economy is running hotter than expected despite aggressive action from the Fed.

She noted that the unemployment rate was expected to rise to 4.6% by the end of the year. Warren said that would mean putting 2 million people out of work.

She said that you were gambling with people’s lives. “You cling to the idea that there’s only one solution: Lay of millions of workers. We need a Fed that will fight for families.

What Republicans can do to raise the debt ceiling: reopening the door for spending reduction in the next-generation wall-to-wall shutdown

Republicans want the government to rein in spending in order to raise the debt ceiling. The debt ceiling must be raised by the end of the month or the government is unable to pay its bills.