The jobs report will give clues about where the economy is headed
The Fed’s Inflationary Outlook: Why Do We Need More? Why Are We Doing It Right, Why Do You Need It? And How Will We Fix It?
An inflation rate of 4% is problematic for several reasons. It gives people a reason to expect inflation to remain high for a long time. They will then ask their employers for higher wages, potentially causing a spiral in which companies increase their prices to pay for the raises and inflation drifts even higher. The tight job market with unemployment near its lowest level in more than 50 years creates a lot of risks. The economy still is not sustainable.
The Personal Consumption Expenditures inflation measure, which is produced by the Commerce Department and is the measure the Fed officially targets as it tries to achieve 2 percent annual inflation, climbed by 6.2 percent in the year through August. While that was a slowdown from 6.4 percent in July, it was higher than the 6 percent economists in a Bloomberg survey had expected.
The August Consumer Price Index, another major inflation gauge, surprised economists in mid-September with a core reading for the month that rose instead of fell as expected.
The Fed raised interest rates by a quarter-point. Powell said we’re not necessarily going to keep raising rates.
Wages are a real pain point. “People are paying more but not making more.” said MartaNorton. With that in mind, Norton said there is a “higher probability of stagflation.”
What is the rate of inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
People who have more money in their wallet are more likely to spend it. That allows companies to raise prices.
The problem is that wage growth above 5% is still historically high. Wages have risen just 3% annually before the H1N1 epidemic. The power of employers to payworker pay shifted due to labor shortages and people leaving the workforce.
Members of the Fed’s rate-setting committee said additional rate hikes may be necessary to restore price stability. On average, policymakers anticipate rates climbing by another quarter-percentage point by the end of this year, according to new projections that were also released on Wednesday.
Economists are actually forecasting a small dip of 0.1% in retail sales from October. It is important to understand that number in context. Retail sales increased over the course of the past year.
The third quarter is mercifully over. It’s been another doozy for the market. September in particular was bleak. It was the worst month for the Dow since the start of the pandemic in March 2020.
While we are in a bear market for everything, there are some encouraging signs for the next few months.
Wall Street is usually very happy in the fourth quarter. Investors tend to buy stocks in anticipation of robust consumer shopping during the holidays. Businesses typically spend more as well to flush out those yearly budgets. Major companies give good guidance in October about earnings expectations for the coming year.
“October has been a Bear killer if you will” is how the stock trader’s Almanac said in a recent post.
The New Year is Coming: Investor Focused Analysis of U.S. Economy and Wall Street Demands in the Strongly Correlated Space-Time
If Republicans gain control of the House, traders will keep a close eye on Washington. Because investors like it, there could be more gridlock in DC.
Whether or not Corporate America and investors are going to be so bullish this October is up for debate given the concerns about inflation, interest rates and the global economy. October is known for many huge crashes, most recently in 2008, but also in 1987 and 1929.
“We’re nearer to a bottom,” said Christopher Wolfe, chief investment officer of First Republic Private Wealth Management. “A lot of quality companies are on sale. It is a time to be patient.
Tuesday: China official PMI; Europe GDP; US employment cost index; US consumer confidence; earnings from Exxon Mobil
(XOM), Samsung
(SSNLF), GM
(GM), Phillips 66
(PSX), Marathon Petroleum
(MPC), UPS
(UPS), Pfizer
(PFE), Sysco
(SYY), Caterpillar
(CAT), UBS
(UBS), McDonald’s
(MCD), Spotify
(SPOT), Mondelez
(MDLZ), Amgen
(AMGN), AMD
(AMD), Electronic Arts
(EA), Snap
(SNAP) and Match
(MTCH)
Wall Street will also need to dive even deeper into Friday’s jobs report to get a better sense of what’s happening in the economy. The unemployment rate is expected to remain at 3.7%, close to a half-century low.
Wall Street will get the last jobs figures for 2022 on Friday morning. A 200,000 jobs creation is expected from the US government in December according to forecasts by economists. In November there were 263,000 jobs added.
The Bottom Line: Non-Debt Labor Market Rebalancing and the Role of Interest Rates in the Prediction of the Swine Flux
Consumers are still flush with cash that they saved up during the early phases of the swine flu, pointed out Vaillancourt. That may mean that inflation isn’t going down anytime soon.
“This would still be a bit too hot, but any sizeable drop would provide Fed officials with a proof of concept for the idea that gradual labor market rebalancing can dampen wage and eventually price pressures without a recession,” they write.
There is a bottom line. The Fed is going to have to keep raising interest rates if Fridays headline number comes in above 250K, and that may be enough to send financial markets into a tailspin.
It is not easy to overstate how delicate the situation is. Kristalina Georgieva, the managing Director of the International Monetary Fund, describes the world as being in a period of historic shocks after a number of shocks over two and a half years.
Nightcap Jobs: Musk, Ford, and the Deal with Musk During the Federal Reserve’s Early Incentive Cut-and-Peak Boom
The Federal Reserve has been raising interest rates at an accelerated rate to try to bring down demand and bring prices under control. Rising rates have made it more expensive for people to get a home mortgage or a car loan or to carry a balance on their credit card. The central bank’s interest rate went from zero to 4.5% this week. The Fed has indicated it will not push inflation higher even though rates are high. The last four hikes were more than half a percentage point smaller. On average, Fed policymakers think rates will top out next year at just over 5%.
Ford is raising prices on its first electric pickup, the F-150 Lightning. Citing “ongoing supply chain constraints, rising material costs and other market factors” the company said the entry-level model will be priced at around $52,000 — up significantly from $40,000 when the truck went into production this spring.
According to state media, the President banned price increases across the economy. “From today, any price increase is prohibited. Prohibited! the president is quoted as saying.
A source close to the negotiations told CNN that lawyers for Musk and his company have agreed to hold off on his deposition in the case. Musk threw a wrench into the plans for a deposition today by offering to buy the company under the original terms of the deal in exchange for dropping the litigation. Both sides are haggling over different aspects of the situation.
Source: https://www.cnn.com/2022/10/06/business/nightcap-jobs-report/index.html
Peloton, the robot army: Combating the crisis in the United States with higher-order inflationary and low-income rates of interest rates
(Axios) Boston Dynamics, the company behind those viral videos of its creepily agile four-legged robots, is pledging not to weaponize their products and encouraging others in the industry to do the same. The company worried that customers wouldn’t believe them if they said they weren’t constructing an army that would destroy humanity. They have now said they are not doing that. Oh wow!
The company announced a fourth round of layoffs as the new CEO attempts to shore up the company’s bottom line According to a statement from the company, Peloton is on a transformation journey in which it is “optimizing efficiencies” to achieve break-even cash flow. (I don’t know who writes this bloodless business-speak but, man, I would love to make it stop).
CNN Business is part of CNN. A group of workers in Amazon’s lone unionized warehouse went on strike Tuesday after a fire there the day before. Workers at the facility said that it was difficult to breathe because of the smoke from the fire. An estimated 100 workers walked off the job.
TheFed should be slowing its rate hike due to the unknown levels of the interest rates needed to slow inflation. The Fed has economic models that can provide some guidance on how high to raise rates, but these models proved unable to predict the inflationary surge that materialized in 2021, and their implications for the optimal level of interest rates must be taken with more than a grain of salt.
How much pain today’s moves will ultimately cause remains unclear: So many countries are raising rates so quickly — and so in sync — that it is difficult to determine how intense any slowdown will be once it takes full effect. Monetary policy takes months or years to kick in completely.
But many economists and several international bodies have warned that there’s a pronounced danger or overdoing it, including a United Nations agency that warned the damage could be particularly acute in poorer nations. The rising dollar has made imports from the United States more expensive for developing economies, which is already dealing with a cost-of-living crisis because of high food and fuel prices.
Wall Street Analysis of Wall Street Financial Markets: The Economic Outlook, Capital Adequacy and Loan Growth Priors to Q3 2022
CNN Business published a version of the story. Before the Bell newsletter. Not a subscriber? You can sign up right here. Clicking on the same link will take you to an audio version of the newsletter.
Investors will closely read the Fed’s economic outlook, the Summary of Economic Projections, which is also due out Wednesday. And they will watch Powell’s press conferences for clues about what’s to come — though they may end up sorely disappointed.
What’s happening: Four of the nation’s largest banks — JPMorgan Chase
(JPM), Wells Fargo
(WFC), Citigroup
(C) and Morgan Stanley
(MS) — report third-quarter earnings before the bell on Friday. Their CEOs will also answer questions from the media about their view on the economy.
Growth of individual loans will decline because Americans are feeling the pinch of rising interest rates. Mortgage applications have been falling recently to a 25-year low, as mortgage rates are almost two times the level they were a year ago.
The economic outlook, capital adequacy and loan growth are all important factors according to analysts on Wall Street.
Loan growth: The rate at which businesses borrow money from big banks doesn’t just tell us about the health of a financial institution itself. It tells us a lot about whether businesses will expand in the next few months or if they are preparing for a downturn.
Analysts expect that loan growth stayed strong during the third quarter. “Credit risk and loan loss exposure are beginning to creep into the picture, but will not be front and center for Q3 2022 results,” wrote CFRA Research Director Kenneth Leon in a note.
Capital adequacy: Expect banks to take questions about how much money they have on hand. There is concern in the United States regarding a domino effect of recent turmoil in UK bond markets.
It’s unlikely the turmoil will lead to another Lehman Brothers-esque financial crisis: The 2010 Dodd-Frank Act forced banks to double their capital ratios and quadruple their liquidity. Large banks participate in the Federal Reserve’s stress tests to measure their capital adequacy.
The other issue, wrote UBS analysts in a note, “is that while banks have sufficient capital and deposit flows to support loan growth, it is less robust than it has been in recent years, and we expect banks to be less well positioned to return capital to shareholders through buybacks.” That will likely weigh on stock valuations.
Jamie Dimon is good at predicting an economic downturn. He warned that the US could be in a recession within six months. Expect more commentary on future outlook and warnings from CEOs to prepare investors for bad days.
An Investigation of the Government’s Influence on the Producer Price Index, an Inflaton Measure of September 30, and the Implications for the Treasury and the Trades
A key measure of inflation increased faster than expected in September, raising concerns that the Federal Reserve’s aggressive rate hikes are having limited impact in bringing prices under control, reports my colleague Chris Isidore.
But it may not be that simple. The government reported Friday that a key measure of wholesale prices, the Producer Price Index, rose 7.4% over the past 12 months through November. That was a tad higher than expected but still less than October’s 8% increase.
The month-to-month rise in wholesale prices was expected to be less than the single-digit increase seen in August.
“Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action,” the minutes read. The participants agreed that the stance should be maintained for as long as necessary.
An investigation found that at least one in five senior federal employees invested in companies that were lobbying their agencies for policy changes.
Federal agency officials hold “immense power and influence over things that impact the day-to-day lives of everyday Americans, such as public health and food safety, diplomatic relations and regulating trade,” said Don Fox, an ethics lawyer and former general counsel at the U.S. agency that oversees conflict-of-interest rules. There is a clear conflict of interest in the trades, he told the Journal.
The bottom line: This report highlights the need for greater disclosure and trading regulations throughout the government. The same issues are also to be found in the legislative branch: There’s currently no federal statute, regulation, or rule that absolutely prohibits a Member or House employee from holding assets that might conflict with or influence the performance of official duties.
The Third Quarter Gross Domestic Product Increased by 2.6% from a Year-Old, Slowly Expanding U.S. Economy
The unemployment rate has remained at or near a 50-year low, while inflation has gone up, according to the statement issued by Biden. There may be setbacks along the way, but we are in a good spot to face global economic challenges.
The Fed policymakers said in December that they think the benchmark interest rate will rise to 5.1% by the end of the year, from 4.6% now.
First, and most importantly, inflation is trending downward. After peaking at 9.1% last June over its year-earlier level, the growth of the Consumer Price Index fell to 6.4% in December.
“Look, what we’re seeing right now is solid growth this quarter. When asked if the latest GDP data alleviated recession concerns, Yellen said growth had slowed after a rapid recovery from high unemployment. We are at a full employment economy. It’s very natural that growth would slow. And it has over the first three quarters of this year, but it continues to be OK. We have a very strong labor market. I don’t see signs of a recession in this economy at this point.”
During the one-on-one interview in Ohio that aired on CNN, Yellen said the third quarter GDP data underscored the strength of the US economy, as policy makers hurried to cool off pervasive and soaring inflation that has had a sharp effect on American views.
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. That’s a turnaround from a decline of 1.6% in the first quarter of the year and negative 0.6% in the second.
The U.S. Economy is Strong as Hell: President Joe Biden, the Economy, and Private Investment Driven by the Recovery of Covid-19
President Joe Biden and his top economic officials have sought to highlight a rapid economic recovery and major legislative victories while at the same time pledge to tackle soaring prices this year, as the complex balancing act they have attempted has underscored.
It is a reality that has made it harder for the administration to take advantage of their record. Biden told reporters last week that the economy is “strong as hell”, drawing flak from Republicans.
The efforts to pull the US economy out of crisis haven’t gotten the credit officials believe is merited.
“There were several problems that we could have had, and difficulties many families American families could have faced,” Yellen said. These are not problems we have because of what the Biden administration has done. So, often one doesn’t get 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’s a critical piece of an economic strategy designed to address many of the vulnerabilities and failings laid bare as Covid-19 ravaged the world, with significant federal investments in infrastructure and shoring up – or creating from scratch – key pieces of critical supply chains.
While acknowledging that it would take some time for the major private sector investments to take full effect, she said that they are real tangible investments happening now.
“But you’re beginning to see repaired bridges come online – not in every community, but pretty soon. Many bridges will be repaired and roads will be improved in many communities. Research and development is important to the long term strength of the American economy. And America’s strength is going to increase and we’re going to become a more competitive economy,” she said.
Source: https://www.cnn.com/2022/10/27/politics/janet-yellen-gdp-recession-cnntv/index.html
Predictions for Wall Street and High-Energy Collisions from the First Two Terms of the FDR-Daly Deal
The battle lines being drawn this week over raising the debt ceiling, as well as a Washington crisis of its own making, have created a situation in which the Republicans have pledged to use leverage if they take the majority.
The President and I agree that the credit rating of the United States should not be held hostage by Members of Congress who think it is ok to threaten a default on Treasuries which are the bedrock of global financial markets.
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. She said the reports that she wanted to stay into next year were accurate.
The program that was discussed by the pair was very exciting to me. “And I see in it great strengthening of economic growth and addressing climate change and strengthening American households. I want to be a part of that.
Federal Reserve policymakers will need to raise interest rates higher and keep them there longer to tackle the higher prices caused by sticky inflation, San Francisco Fed President Mary Daly said Saturday.
“Interest rates have risen at a whiplash-inducing speed, and we’re not done yet,” said Greg McBride, chief financial analyst at Bankrate. It will take some time for inflation to come down, even after we see some improvement.
“We see today that there is a bit of a savings buffer still sitting for households, that may allow them to continue to spend in a way that keeps demand strong,” said Esther George, president of the Federal Reserve Bank of Kansas City. “That suggests we may have to keep at this for a while.”
George said “I have been in the camp of steadier and slower rate increases, to begin to see how those effects from a lag will unfold.” “My concern being that a succession of very super-sized rate hikes might cause you to oversteer and not be able to see those turning points.”
They worried that the Fed’s interest rate hikes could lead to a slowing economy while failing to slow rising prices that hurt families.
The Fed’s Fourth Three-String Higgs hike in the Real Estate Market: Why is the UK in a Housing Recession?
Shawn Woods said his company has gone from selling 12 houses a month to only selling five a month since the Fed began raising rates.
“Never in my dreams would I have thought we’d go from 3 to 7 in six months,” said Woods.
“I think we’re in for a rough 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.”
Even as mass layoffs at companies like Facebook, Google, Goldman Sachs, Intel and Microsoft dominate headlines, job openings still outnumber job seekers by nearly 2 to 1.
In normal times, that kind of news is worth celebrating. This suggests the economy is overheating, which is a cause for concern. That’s partly why the Fed announced its fourth-straight three-quarter-point hike, the latest in a series of aggressive moves that would have been unthinkable just a few months ago.
There are currently 1.9 jobs for every one person looking for work, a margin that the Fed worries is keeping inflation uncomfortably high. With plenty of options, workers are demanding higher wages; and with few applicants, managers are forking out higher pay, which bolsters demand for goods and services (and therefore drives up prices).
In a report on the bank’s investor survey for the next 12 months, Jim Reid said that deflation risks are seen as high in the US, Europe and the UK. There is a consensus that there will be a recession in the US in 2023.
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. A new CNN poll states three-quarters of likely voters think the country is in a recession.
The Great Depression, Mortgage Rates, and First-time Homebuying: Reconciling the Boomer Narrative with Millennials
Cut to 2020 and that narrative got flipped on its head. They couldn’t afford homes in the suburbs, so they didn’t want them. But when the pandemic hit and demand for property exploded, the furor was driven by people in their 30s — finally flush after years of slogging away at whatever jobs were left for them in the fallout of the Great Recession, and, for many, eager to flee to the wide-open spaces of suburban life.
(It also didn’t hurt that dizzying stock surges meant Baby Boomer parents with large investment portfolios were happy to pass on some of those gains to their darling Millennial kids.)
As that 2020 housing boom begins to go bust, those who managed to close on a home in the crush of competition fed by rock-bottom mortgage rates should count themselves extremely lucky.
For a historical comparison, the share of first-time buyers over the past decade has been between 30% and 40%. It was 50% in the middle of the Great Recession.
“They have to save while paying more for rent, as well as student debt, child care and other expenses,” said Jessica Lautz, NAR’s vice president of demographics and behavioral insights. “And this year were facing increasing home prices while mortgage rates are also climbing.”
Mortgage rates rose throughout most of 2022, spurred by the Federal Reserve’s unprecedented campaign of harsh interest rate hikes to tame soaring inflation. According to my colleague Anna Bahney, mortgage rates dropped in November and December, after data showed that inflation may have reached its peak.
Jenny Schuetz writes that policies that regulate land use and housing production make it hard to add more homes in desirable locations.
Instead of rebuilding within existing neighborhoods, housing supply has expanded through single-family subdivisions at the urban fringe. That is putting more people and homes in areas that are vulnerable to fire.
With affordability reaching crisis levels, now is the best time for federal and local governments to revisit the way they frame the American Dream. If those who will benefit from this are better represented in office, it will happen. Schuetz says that the upper-middle class Boomers in power are reluctant to change the system that got them where they are.
The Fed’s Rate Increases and the Stock Market: Does the Economy Really Need a Tune? A Commentary from Neel Kashkari
Still, policymakers made their decision and hiked rates for the ninth consecutive time. They raised overnight rates to a range of 4% to 5%, their highest level since September 2007. restore price stability remains a top priority
Minneapolis Federal Reserve President Neel Kashkari said last Wednesday that he’s “open to the possibility” of a larger interest rate increase in the Fed’s March policy meeting, “whether it’s 25 or 50 basis points.” (That’s a quarter or half of a percent. A basis point is one hundredth of one percent).
The economy will weaken less and the stock market will be less bad if the Fed does not tighten as much.
After a key inflation indicator came in less than expected, stocks surged on Thursday in their best day since 2020. As they interpreted the report to mean that peak inflation may be over, investors broke out their party hats. That means the Fed could be less aggressive with its rate hikes.
“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. The Fed needs to be confident of that before it eases.
The chief economist at Pantheon Macroeconomics says he was surprised by some people’s willingness to leap on the numbers and say that the economy is not responding to the Fed’s rate hikes. The Fed thinks the trends are favorable. Economic growth is not going as well. Inflation is falling. But these things never happen in a straight line.”
The Cryptocurrency Thaw: What Comes After Rate Hiking and the End of Rate Higgs Wall Street is Doing
It’s been a terrible year for cryptocurrency. Since last November, the value of digital coins has fallen, while FTX, which was recently valued at $32 billion, was destroyed in a fire.
Those assets have gotten hit just like stocks and bonds, proving that there is no place to hide in a market full of concerns about rate hikes and recession.
A crypto thaw: With near-zero interest rates and massive influx of investors from large institutions, Bitcoins went through the Covid-era. In November it reached a record high.
The dollar strengthened as the central banks started raising rates to fight inflation, and so investors chose it as their ultimate safe haven. The economy began to sour and new investors began to leave the market in droves because they still viewed it as a risky asset.
Since the summer of 2020 prices for the coin have gone up. It has not been a smooth ride, but they are up more than 80%. The Nasdaq, by way of comparison, is only up about 1% from July 2020 levels.
The purchasing power of buyers has plummeted with mortgage rates up four percentage points. That has pushed many buyers out of the market and those who remain may need to look at a lower price point or make compromises on the location, size, or condition of a house in order to find one that is affordable.
The traders think there will be a half-point increase. The federal funds futures show a 80% chance of a hike.
Jamie Cox, managing partner at Harris Financial Group, said that the end of rate hiking is in sight. “The Fed is trying to navigate the very narrow path between defeating inflation and destroying the economy with blunt force rate hikes — even they now know the latter is a very real risk.”
The more widely watched Consumer Price Index data for November comes out Tuesday, just a day before the Fed announcement. CPI rose 7.7% year-over-year through October.
Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research, said inflation probably peaked but it could not come down as fast as people wanted.
The Fed will conclude its rate hike regimen by the second quarter of next year, predicted JPMorgan analysts in a recent note. Inflation is expected to persist in the coming year, and fiscal policy is expected to remain on hold, so the Fed will likely end its monetary tightening cycle in the new year. The analysts expect two quarter-point hikes in the first half of 2023.
Then there’s the anticipated central bank meeting. Sandwiched between CPI and retail sales on Wednesday is the Federal Reserve’s latest policy committee meeting.
“A pivot or pause is not a cure-all for this market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. Maybe rate cuts are too late. Recession risks are still relatively high.”
Inflationary predictions for HERMES and L’oreal: What can investors really expect from their stock portfolios in the next two decades?
So it’s possible consumers were simply getting a head start on holiday shopping. Retail sales have been impacted by inflation because people are spending more money for things.
Everyone has been talking about inflation this year. According to Arnaud Cosserat, CEO of Comgest Global Investors, it will be more about disinflation in the next two decades.
What does that mean for investors? People should be looking for quality consumer companies with pricing power who can keep their profit margins. He said that two of his firm’s stocks werefits that bill: luxury goods maker HERMES and cosmetics company L’oreal.
Friday: Eurozone Purchasing Manager’s data; UK retail sales; earnings from Accenture,DRI and the rest.
The stock rally was caused by hopes that the Fed would scale back on its rate hikes. They are down for the year and the stock market has been volatile so far in December.
The yield on the 10-year US Treasury has fallen back to around 3.5% after it moved above 4.3% in October. The 10-year has been at its highest in a while.
Even though many central banks are expected to raise their rates by a half point and the Fed will probably increase rates again in a few months, investors don’t think policy makers can prevent a downturn in the future.
Tom Essaye, editor of the Sevens Report newsletter, said Monday that the focus should shift to how badly growth slows and earnings fall before a central bank hints at providing any support for the economy.
Fed Rates Will Rise Early in the Next Few Months: Sam Bankman-Fried Tests in the House Financial Services Committee’s Hearing on Tuesday
SamBankman-Fried will give testimony in front of the House Financial Services Committee on Tuesday. Bankman- Fried is not a witness set to testify at the Senate Banking Committee’s FTX hearing on Wednesday.
Maybe investors will be able to relax and take a deep breath before the Fed announcement and press conference later that day. There is no guarantee that will happen.
But the average period between peak interest rates and the first reductions by the Fed is 11 months, which could mean that even if the central bank stops actively hiking rates, they could remain elevated into 2024.
The United States is expected to follow the European Central Bank, the Bank of England and the Swiss National Bank in making moves on Thursday. Borrowing costs will likely increase in the Philippines and several other countries this week.
The question is how big of a jump will there be in the dots. The Federal Reserve expected interest rates to finish this year at about 0.9% in December.
The analysts at Goldman said in the note that they believe the mediandot will rise to a new peak in Federal fund rates. That would mean Fed officials expect to raise rates by half a percent more than they did three months ago, when the plot was last released.
The projections for real GDP growth will most likely be revised down to zero in the fourth quarter of 2023 according to the economists at EY-Parthenon. Unemployment rate projections, they say, will likely approach 5% (from 4.4% in the September update).
The RCN’s First Walkout Through the Winter of Discontent: The Futility of Self-Driving Models and Tesla’s Driver Assisted Technology
As many as 100,000 members of the Royal College of Nursing will walk out across England, Wales and Northern Ireland on Thursday in the first of two days of strikes this month to protest poor pay and working conditions. Anna said that they planned to walk out again on December 20.
“Patient safety is always paramount,” the RCN says on its website, adding that some nursing staff would continue to work through the strike. The RCN has promised to maintain critical services, including chemotherapy and dialysis treatments, during this month’s stoppages.
It is the broadest wave of industrial unrest since the country’s infamous “winter of discontent” in the late 1970s, when huge numbers of workers, from truck drivers to gravediggers, went on strike.
The lawsuit cited numerous times when Musk and others at Tesla had stated that, within a year or two, the cars would be fully self-driving thanks to software updates. For instance, in a 2016 Tweet, Musk stated that a Tesla car would be able to drive itself across the United States “by next year,” the suit said.
“Mere failure to realize a long-term, aspirational goal is not fraud,” Tesla’s lawyers wrote in a November 28 court filing, asking that the suit be dismissed.
The lawsuit, filed by the California firm of Cotchett, Pitre & McCarthy, also cited numerous cases of crashes involving the use of Tesla’s driver assist technology.
In the last month, the government’s scorecard shows inflation at 7.1% – down from the 9% it hit in June. That’s the smallest annual price increase in 11 months.
It’s great to see progress, but we have a long way to go toward price stability,” Powell said at a press conference after the board announced its latest rate increase.
The Central Bank of Japan says Inflation is still “resilient” and “our worst nightmare is behind us,” and that number of Americans is expected to decrease by the month
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. The average interest rate for used cars is more than 10%, compared to less than 2% last year, and they’re making the largest monthly payments on record.
“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 jobs report showed a labor market that was still robust, which caused stocks to plunge. They fell again on Thursday when weekly numbers showed the number of Americans filing for unemployment benefits fell, indicating a still-tight labor market.
Fed officials believe 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 make up 25% of all consumer spending.
The Rise and Fall of the US Economy: The Last Ten-Year Treasury Rate Increases in the First Three Years of Central Bank Wall Street Recession
“Goods prices are going to fall,” Powell said. We know 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.”
Powell thinks the job market is out of balance, with too many openings than workers available to fill them. The US economy has replaced all the jobs that were lost during the Pandemic, but the share of people who are working or looking for work hasn’t recovered.
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.
The price of gasoline went down when Russia invaded Ukraine, 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.
The job is not done, and the labor market is too tight for Powell’s liking. He said it would be premature to think we have this and he doesn’t anticipate cutting rates this year.
Fed policymakers also forecast that unemployment would drop lower than previously expected by the end of the year, to 4.5%, from the projected 4.6% in December.
He said that he doesn’t know if we will have a recession or not and if it will be a deep one.
The Role of Wall Street and Technology in the Economics of the Economy and the Low-Energy Decline of the U.S.
Changes in the weather or the war in Ukraine could cause big swings in prices at the gas station and the grocery store. Slower economic growth around the world could cause fluctuations in the price of crude oil and other commodities.
The price of services is heavily dependent on what happens to wages. 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.
Jon Stewart, former host of The Daily Show, said after the meeting that the Fed might put us in a high unemployment recession.
It is possible that he is correct, but some economists still think that a Fed pivot could come quickly and with the recovery if employment weakens next year.
And even though the pace of jobs gains may be slowing, it’s not as if economists are starting to predict monthly job losses like the US has had in previous recessions.
Wall Street is clearly buying into the “soft landing” argument. Just look at how well tech stocks have done so far this year, despite a series of high-profile layoff announcements from top Silicon Valley companies in the past few months.
Super Saturday and the Fourth Sunday of Shopping in the Presence of a New Bankman-Fried Stock Exchange: Evidence against FTX and the Bahamas
Bankman-Fried is in the Bahamas where FTX was based. A judge in the island nation denied him bail, saying that he posed a flight risk. The United States could take weeks to extradite him.
Federal prosecutors in New York charged Bankman-Fried with eight counts of fraud and conspiracy. Bankman-Fried could face up to 115 years in prison if convicted on all eight counts against him, though he likely wouldn’t get the maximum sentence.
The US market regulators filed civil lawsuits against Bankman- Fried, accusing him of building a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in cryptocurrencies.
Super Saturday is the busiest day of gift-buying on the Saturday before Christmas. Christmas Eve and Christmas Day are on a Saturday and Sunday, respectively, making for a Sunday and Super Saturday this year. The National Retail Federation estimates that 158 million consumers will shop that day.
Shoppers have only completed half their gift purchasing so far, the NRF estimates. With less than a week to go until Christmas Day, and drop-dead shipping deadlines approaching, people have a lot more buying to do.
Source: https://www.cnn.com/2022/12/19/investing/premarket-stocks-trading/index.html
The Effects of Inflation on Consumer Behavior in the Pre-Christmas Season: A Case Study of the Services Sector and the Consumer Spending
It’s also costly for retailers to sit on an oversupply of merchandise for too long. 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, it adds up if they can’t quickly clear out.
Unsolicited products lose value over time. It is true that savvy shoppers won’t buy last year’s style if the trend has passed. Stores are forced to reduce prices, which affects profitability.
The last weekend before Christmas is when stores offer 50% to 60% off, and also provide 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 annual increases for both PCE inflation indexes fell to their lowest levels in more than a decade.
Spending continued to increase in November, but at a much slower pace than in previous months. Spending was up 0.1% in November as compared to 0.8% the month before. Personal income increased by 0.4% in November, down from 0.7% in October.
The economic lines are quite zig-zaggy. The strong job market may point to continued growth in spending. Others, like the rising number of overdue car loans, point to a looming slowdown.
Inflation has moderated in recent months, especially on items like goods as supply chain bottlenecks have eased and consumers focused more spending in areas like leisure and hospitality.
However, inflation within the services sector has been a little “sticky,” and not abating as quickly. According to the PCE report, the services index posted a monthly increase of 0.4% and a year-Over-year increase of more than 11%, with no change from the previous month.
While much of the services inflation is due to housing costs, which are rapidly reversing, the Fed is concerned that strong wage growth could fuel persistent increases in services prices and overall inflation, he added.
Decreasing New Orders for Manufacturing Activity in the First 12 Months of the Great Wall, and a First Anatomy of the State of the Economy
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.
Transportation equipment, specifically new orders for non-defense aircraft and parts, drove the decline, according to the report. New orders that do not include transportation are up 2%.
“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 prelim reading for December suggests it will contract further at year end. It is expected to be cold for the manufacturing sector.
In December, the final consumer sentiment reading was 59.7, up marginally from a preliminary reading of 59.1 and November’s final reading of 56.8, according to the data from the Surveys of Consumers.
Earlier this week, the Conference Board’s consumer confidence index – another measure of how consumers are feeling about the economy – landed at its highest measurement since April 2022.
Powell pointed out in December that the labor shortage is caused by early retirements, care needs, Covid illnesses and deaths, and a plunge in net immigration.
As such, employers are hesitant to lay people off, and other areas of the economy are showing such strength that those who are unemployed are able to get rehired quickly, Mayfield said.
“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 2008-2009 US Open Market Committee Report on the First Statistical and Economic Results from the Associated Banks and Financial Markets: What Do They Tell Us About the State of the Economy?
The Federal Open Market Committee has about eight regularly scheduled meetings per year. Chair Powell leads a press conference after the conclusion of the group’s meeting on the second day in which they look through the economic data, assess financial conditions, and evaluate monetary policy actions.
It was a brutal period for the stock market, with roughly one-fifth of the value of the S&P 500 vanishing and the Nasdaq dropping by more than one-third. All three major US markets suffered their worst years — by far — since 2008.
New numbers published last week show first-time applications for unemployment benefits edged up to 225,000. It is not as low as it used to be and is almost identical to where it was a year ago.
That said, the big question weighing on everyone’s mind is whether or not the United States will enter a recession this year. The strength of the labor market, American consumer and the Federal Reserve are three “ifs” that determine the health of the economy.
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.
The Fed has already done this and it could cause a recession if it continues to raise rates so high.
Premarket Stocks Market Analysis: Inflation, Wall Street, and the ADP/M&M/M_Pb Reports
The manufacturing sector report was weaker than expected and there were more signs of strength in the jobs market.
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.
“The persistent mismatch between labor supply and demand continues to put upward pressure on wages,” said Lauren Goodwin, economist and portfolio strategist at New York Life Investments, in a report.
The Fed is likely to focus on paychecks in Friday’s report, rather than jobs added. Wall Street may do the same.
As my colleague Catherine explained, a growing number of major tech firms have recently announced job cuts. In a press release late Wednesday, Amazon stated it was laying off over 18 thousand employees.
As the economy quickly rebounded from a brief recession in 2020, the hope was that businesses and consumers would spend more on tech products and services.
Tech companies realize that inflation may have not been taken into account in their budgeting plans, as recession alarm bells are once more sounding.
In a recent note to employees, the chair and co-CEO of San Francisco-based company commented that they hired too many people leading into the economic downturn.
Companies that last a long time go through different phases. In a memo to employees, Andy Jassy said that Amazon is not in heavy person expansion mode all the time.
Source: https://www.cnn.com/2023/01/05/investing/premarket-stocks-trading/index.html
The World Economy is Still Going Strong: Consumer Prices and Wage Growth in Europe are Probing an Emerging Market Resilient During the New Year
The global economy isn’t out of the woods. Many people, including the head of the International Monetary Fund, are still concerned about a downturn that could hit emerging markets especially hard.
But CNN’s Anna Cooban notes that investors in Europe appear to be growing more hopeful that the pace of consumer price increases is starting to slow in France and Germany. A drop in energy prices is leading the pullback.
The British Retail Consortium said in a report Wednesday that food prices surged 13.3% in December. Meanwhile, data analytics firm Kantar noted in another report that UK grocery sales hit a record during the four weeks ending on December 25, even though the number of items that consumers bought fell 1% during the same period.
The New Year salads days are where many feel rejuvenated and positive about the upcoming year. There is clarity during this time of the year.
The word of the week has been Jobs, as investors eye a number of data showing a strong labor market that is resistant to the Feds attempts to cool the economy.
The US labor market is historically tight, with the unemployment rate, as of November, at just 3.7% and about 1.7 available jobs for every job seeker. The second- best year on record for job growth would be in 2022, if job numbers come in as expected on Friday.
In an interview with the Financial Times this week, Gita Gopinath, second in command at the International Monetary Fund, urged the Fed to continue with rate increases this year, citing the labor market’s resilience.
So will wages moderate this year? The analysts at Goldman think they’ll do that. Wage growth is expected to slow from 5% to 4% by the end of this year, as the unemployment rate will grow.
The end of the US consumer: why the Fed is not going to hike its mortgage, nor why the economy is going to fall into recession, and what the next step will be
Bank of America CEO Brian Moynihan told CNN around the holidays that the continued strength of the US consumer is nearly single-handedly staving off recession.
Market sentiment was damaged by the disappointing retail sales in November, which resulted in the odds that the Fed would hike rates even more and push the economy into recession.
This is the main question on every investor’s mind — and the answer will not only help determine what happens to markets this year, but also whether the economy will fall into recession.
And while officials welcomed softer inflation reports in recent months, they stressed that “substantially more evidence of progress” was required and said that inflation was still “unacceptably high.”
The 30-year fixed rate mortgage averaged 6.48% in the week ending January 5, up from 6.42% the previous week according to Freddie Mac. The 30-year fixed rate was 3.05% a year ago.
The current market is driving away would-be buyers, partially because there’s little inventory as Americans are uninterested in selling and parting ways with their ultra-low mortgage rates.
In a regulatory filing, the home goods chain stated that there is substantial doubt about the company’s ability to continue.
“Bed Bath & Beyond is too far gone to be saved in its present form,” Neil Saunders, an analyst at GlobalData Retail, said in a note to clients Thursday. The most likely outcome is bankruptcy.
Tech Times: The Old Tech Guard and the Rise and Fall of the U.S. Labor Market: An Analysis by Vaillancourt, Berkowitz and Kamin
“Workers will be loath to relinquish the bargaining power they perceive to have gained over the past year,” said Jason Vaillancourt, global macro strategist at Putnam, in a report.
A strong labor market with a reserve of excess savings is all it takes to keep the Fed up at night.
Some think that tech layoffs won’t be a problem. Investors seem to be (somewhat perversely) taking the view that companies cutting costs is a good thing for profits and that revenue likely won’t be impacted in a negative way because consumers are still spending.
The tech earnings season is off to a poor start with Microsoft, Intel, and IBM all reporting weak results. But it’s important to note that that trio is part of the “old tech” guard while Apple, Amazon, Alphabet and Meta all have more rapidly growing businesses.
“A set of much weaker-than-expected reports from these firms could dent the market’s strong start to 2023,” said Daniel Berkowitz, senior investment officer for investment manager Prudent Management Associates, in a report.
The results thatTesla reported last week could be a sign of good things to come from other tech companies.
Monday: IMF releases world outlook; earnings from Philips
(PHG), GE Healthcare, Franklin Resources
(BEN), SoFi, Ryanair
(RYAAY), Whirlpool
(WHR) and Principal Financial
(PFG)
Editor’s Note: Steven Kamin is a senior fellow at the American Enterprise Institute (AEI), where he studies international macroeconomic and financial issues. He was the director of the international finance division of the Federal Reserve. The opinions expressed in this commentary are his own. There’s more opinion on CNN.
Fed President Powell: The End of the Fed’s Borrowing Regime and the Growth of the US Economy in the First Public State since SVB Fall
The economy slows due to the rise in interest rates, and labor markets tighten because of it, as price pressures continue to ease.
Here’s the deal: In his first public statements since SVB fell, Powell strongly signaled that the Fed’s yearlong interest-rate-hiking regime will likely come to an end soon.
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.”
US markets jumped following the press conference, indicating the investors expect a more dovish Fed going forward. The S&P 500 closed the first day of February 1.1% higher after notching its best January in four years.
Chris Waller said the Fed did not want to be fake in the future. In the year 2021, there were three months of relatively low readings of core inflation before it exploded.
Financial markets are skeptical of the forecast. Many investors are betting that the central bank will soon start cutting interest rates, despite repeated warnings to the contrary from Fed officials. The expectation of lower borrowing costs is one reason the stock and bond markets have rallied in recent weeks.
The US economy added 517,000 jobs in the month of January, and that was not expected, according to Powell. It shows you why we think that this will take a long time.
“The disinflationary process has begun,” Powell said, noting progress especially in goods prices. The services sector’s price gains 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 major US stock indexes fell when Powell talked about the economy, with the S&P falling by 3% and the tech-focused Nasdaq dipping by 0.20%.
He said that the labor market was having 3.5% unemployment in the last two years, and that inflation was just 2%. “We all want to get back to that place.”
“If we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more,” he said.
If your heart goes pitter patter when central bankers discuss inflation, then this may be the best Valentine’s Day ever. Four members of the Federal Reserve spoke today about the economy.
First up was Richmond Fed President Thomas Barkin, who is not a voting member on the interest-rate setting Federal Open Market Committee this year. Barkin said in an interview with the TV show Tuesday that inflation is not going to go away completely, but that it is coming down slowly.
Predicting future economic data is a problem. “When inflation repeatedly comes in higher than the forecasts…or when the jobs report comes in with hundreds of thousands more jobs than anyone expected…it is hard to have confidence in any outlook,” she said.
Implications of Inflation for the Fed and the CPAP Report on Decays of the S&P 500, the Dow Jones and the Nasdaq
Philadelphia Fed President Patrick Harker sounded less concerned with inflation than his counterpart. This year he is a voting member of the FOMC. Harker said in a Tuesday speech that rate hikes are likely to be close, despite not being done yet. I expect the policy rate will be restrictive enough that we’ll hold rates in place at some point this year, said Harker.
Last up was New York Fed President John Williams, another FOMC member and also someone whose name has been mentioned as a possible successor to Lael Brainard as Fed vice chair now that President Biden is expected to name Brainard as his new top economic adviser.
That’s a fair share hotter than what economists were expecting. Consensus estimates on Refinitiv projected the annual core index to land at 4.3% and extend what was a three-month stretch of cooling.
President Joe Biden said the higher-than-expected reading shows that the country has “more work to do” but lauded the progress the economy has made during his administration.
The BEA has a report on the Personal Income and Outlays. The report includes the latest estimates on how much consumers are bringing in and how much they’re spending.
The PCE report supports recent data that shows inflation is not falling at a lower rate than markets had been hoping for. The Fed’s rate-hiking campaign is under greater pressure than markets anticipated just a few weeks ago.
The major indexes were all loser for the week. The S&P 500 was down 2.7% marking its worst week so far of 2023. The Dow fell by nearly 3%, its fourth straight losing week. The tech-laden Nasdaq ended the week 3.3% lower.
The Fed is Going to Panic: Factors Playing into Consumer Behavior in the December and January High-Inflationary Reports
The Fed has been trying to cool down decades-high inflation by raising interest rates so as to stop the growth of demand.
Daco said that the disinflationary process is going to surprise us, with a smooth ride back down to the low levels. “And so we’ll have to see whether the Fed panics in light of this recent report.”
Part of the challenge, economists and Fed officials say, has been some of the unique factors playing into this recent stretch of high inflation, including the global pandemic and its drastic effect on the US economy, labor market, supply chains and spending patterns; the influence of stimulus efforts to keep the economy afloat; and geopolitical shocks.
Additionally, while monetary policy does act on a lag, the rapid increase in interest rates have filtered down to some areas of the economy, notably housing and financing.
The January retail sales report gave an early indication that Americans had loosened their purse strings after the holiday shopping season but the pace in Friday’s report surprised on the upside.
Spending on durable goods (items like cars, appliances and TVs expected to last three or more years) increased 5.5% last month, buoyed by vehicle sales; non-durable goods (clothing, gas, groceries, etc.) increased 1.2%; and services gained 1.3%, according to the report.
Warmer weather, a rebound of holiday spending, seasonal data adjustments, and the first-of-the-year boost in Social Security income and state minimum wage are some of the factors that economists think may be behind the January spending surge.
“Consumers have noted both positive and negative developments in the economy,” Hsu said in a statement. Concerns about rising unemployment have surfaced for some, even as layoffs have been announced. On the other hand, labor markets continue to enjoy historic strength, supporting robust income growth. Consumers will weigh the balance of factors, focusing on implications for their own budgets, as they make decisions on spending or saving.”
Spending gains saw in January may not last because of the high inflationary environment, rising interest rates, and recent household debt data which showed a decline in finances, he said.
According to a University of Michigan survey released Friday, consumers are more positive about the future of the economy, even through most of February.
The University of Michigan’s Surveys of Consumers shows that the sentiment index has risen for three months in a row, 17 points above the all time low.
Year-ahead inflation expectations bounced back up, coming in at 4.1% this month. That is up from 3.9% in January and the same as 4.4% in December. Long-run expectations for inflation held pat at 2.9% for the third consecutive month, according to the report.
But there’s a catch: All that spending threatens to put more upward pressure on inflation at a time when the Federal Reserve is raising interest rates aggressively to keep prices in check.
It would be great if consumer spending fell to cool inflation, but it would be bad news for the economy. If spending continues to grow, it could force the Fed to raise rates even more aggressively and bring prices under control.
The Commerce Department said on Friday that personal spending increased in January as consumers spent more with both goods and services.
Lots of people have money in their pockets because of good job growth and rising wages. Retirees also got a raise this year. Social Security benefits rose by 8.7% in January, the largest cost-of-living increase in four decades.
Jonathan Silver, who monitors credit card use by about 100 million people nationwide, says that additional income will help to support consumer spending.
In addition, many people socked away extra savings during the early months of the pandemic, when spending opportunities were limited and the government was distributing multiple rounds of relief payments. Americans are sitting on a lot of cash and bank balances have come down.
“We estimate households to still have about ten months of spending power if they continue to deplete excess savings at the pace they have over the past six months,” Wells Fargo economists wrote in a research note Friday.
The Effects of the Covid Epidemic on Las Vegas and Restaurants: Consumer Behavior during the Prevalence of the Second World 1929-2013 Pandemic
People who put off traveling during the worst of the pandemic are making up for lost time. Last year vacation visits to Las Vegas jumped over 20%.
“People realized what they were missing during Covid,” says Steve Hill, CEO of the Las Vegas Convention and Visitors Authority. It has driven a lot of people to get back to experiences. And we see, and I’m sure you do as well in the numbers, a shift from buying stuff to buying experiences.”
Not everybody is flush with cash. Some people are struggling. Businesses do not believe that consumers will continue to spend freely.
Walmart, the nation’s largest retailer, is projecting only modest sales growth this year. CEO Doug McMillon notes that shoppers are increasingly focused on basic necessities like groceries, while limiting spending on more discretionary items.
Customer are still spending money, according to McMillon. “It’s obviously not as clear to us what the back half of the year looks like.”
Restaurant owner Cameron Mitchell is similarly cautious. Mitchell has noticed that diners seem to prefer his less expensive outlets over more expensive ones.
Mitchell says that his gut is telling him. A year ago people knew we had to raise our prices. They were accepting of that and it was obvious. But the consumer is starting to change. I think people don’t want inflation to keep going up and they aren’t as tolerant of price increases.
Ian Shepherdson thinks the Fed’s efforts are working. He believes the strong spending last month was a result of warm weather.
Forecasts for the US Economy in 2023: A Large Sample of Business Economics Perspectives, as Revealed by the NABE Outlook Survey
In a time when the economic data has delivered mixed messages or flat out busted expectations, economists’ predictions for the year ahead are growing increasingly opaque.
The National Association for Business Economics’ latest survey, released Monday, shows a “significant divergence” among respondents about where they think the US economy is heading in 2023, the organization’s president said.
“Estimates of inflation-adjusted gross domestic product or real GDP, inflation, labor market indicators, and interest rates are all widely diffused, likely reflecting a variety of opinions on the fate of the economy — ranging from recession to soft landing to robust growth,” Julia Coronado, NABE’s president, said in a statement.
“Panelists’ views are split regarding how high the Federal Reserve may raise interest rates, how long rates might stay at the peak, when cuts would begin, and what would signal the central bank’s actions on each of these fronts,” Dana M. Peterson, NABE Outlook Survey chair, and chief economist at the Conference Board, said in the report. The impact of China reopening on global inflation and the threat of a debt ceiling vote are some of the consequences that the respondents are concerned about.
The labor market remains strong and tight, and panelists raised their projections for monthly payroll growth this year from 102,000 to 76,000 jobs per month.
On the housing front, they expect home prices and new home construction to continue to fall this year, projecting that housing starts could see their largest decline since 2009.
They do not think that the downturn will swing into bust territory. 2% of the respondents said that the greatest risk to the US economy was a housing market bust.
Almost half of respondents said that the biggest problem was too much monetary tightening. The broadening of war in Ukraine was 12% of the second place.
Wall Street investors are preparing for the worst as a wave of jobs data arrives over the next few days.
What to expect is the February and January payroll reports for the private sector, as well as job openings, hires and quits. On Thursday, Challenger, Gray and Christmas are going to release their jobs cuts numbers for February, while the Labor Department’s monthly employment report is on Friday.
The Good, the Bad and the Ugly: Towards a Better Future Through Federal Reserve and State Rate Sensitivities
“We’re stuck in the middle, but we’re better off.” said Josh Hirt, senior US economist. Core areas are still showing resilience even though activity has weakened in the interest rate sensitive sectors. The impact of rates is not fully working through the economy.
The unemployment rate is currently at a 54-year low of 2.5%, but is expected to increase to 5% by the end of the year.
What’s happening: Federal Reserve Chairman Jerome Powell will testify in front of the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.
On Thursday, President Joe Biden is expected to present his annual budget to Congress. The plan comes at a time when lawmakers are angry with one another over the debt ceiling. Republicans, who control the House, say they will not raise the limit until deep cuts are made in federal spending. The White House refused to negotiate.
Biden said his budget would help offset the costs of Medicare, Social Security and health care by increasing taxes on the rich. Last year the president proposed a tax on the rich. Other Biden proposals, like increased tax on capital gains and on corporate stock buybacks, have roiled Wall Street.
Wall Street, Wall Street and the Fed: What do we really need to know about disinflation and the emergence of a Fed-Inflated Universe?
Daly acknowledged that high inflation and the aggressive policy action taken by the Fed to bring it down have caused panic on Main Street and Wall 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.
Atlanta Fed President Raphael Bostic said Wednesday that he thinks the Fed should 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.
And for the US economy, it could likely mean a “Wile E. Coyote moment,” Summers said, referencing the cartoon canine’s relentless — yet futile — pursuit of the speedy Roadrunner off a cliff and into mid-air.
In the weeks after that meeting there was a flurry of surprisingly strong economic data, which showed blockbuster job gains and robust consumer spending.
In the last year, the central bank has raised its interest rates eight times. But after appearing to cool off late last year, both consumer spending and hiring came roaring back in January, putting more upward pressure on prices.
The unemployment rate will rise to 4.6% by the end of the year, according to the Fed’s December forecast. Warren said it would result in 2 million people being out of work.
“You are gambling with people’s lives,” she said. “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.”
Inflationary Economy and the Debt Ceiling: Expenditure Cuts and the Implications for the Poor and the Poor
Republicans are demanding the government rein in spending as a condition to raise the debt ceiling. Democrats accuse the GOP of risking a costly federal default if the debt ceiling is not raised and the government finds itself unable to pay its bills.
The European Central Bank followed through with a half point rate hike, even as one of Europe’s biggest banks, Credit Suisse, had its shares wiped out in the market turmoil.
Is it bad to have inflation? The circumstances have a bearing on it. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have been bad during inflation booms, but houses have held their value better.
The Banking Troubles of Two Weeks After Silicon Valley Bank’s Collapse: Where Do Bank Executives Go? What Happened When the Banks Glimped?
The stress in the banking system appeared to have abated recently. Large withdrawals from regional banks have been stable according to the treasury secretary. And bank stocks have rallied this week.
The banking troubles of two weeks made these plans difficult to implement. Why? In addition to slowing the economic growth, higher interest rates are affecting the value of financial assets. Some bank executives did a bad job of planning for asset declines. A classic bank run happened when customers were worried that the banks wouldn’t have enough money to return their deposits. Silicon Valley Bank and Signature Bank went under as a result of it.
Some observers had urged the central bank to pause its rate hikes, at least temporarily, in order to assess the fallout from the collapse of Silicon Valley Bank and Signature Bank earlier this month.
The flood came three days later. Fears of a financial calamity like that of 2008 were raised by the collapse of Silicon Valley Bank. US authorities had to step in to keep the panic from spreading.
Comment on “Banking, Supervision, and the Fed” by Barr, Warren, Scott, and Bostjancic, and Yellen
Michael Barr, the Fed’s vice chairman for supervision, said that they need to have humility and conduct a careful review of how they supervised and regulated the firm.
Others have called for an investigation of the Fed’s role in bank failures. Elizabeth Warren, D-Mass., and Rick Scott, R-Fla., want the Federal Reserve’s internal inspector general to be replaced by an outside inspector.
“Credit is the grease that makes small businesses’ wheels run and makes the overall economy run,” said Kathy Bostjancic, chief economist at Nationwide.
The Federal Reserve and policymakers entered their second policymaking meeting of the year surrounded by an unusual amount of uncertainty.
The Fed acknowledged that recent financial market turmoil is weighing on the economy and inflation in a statement after the meeting, but they still expressed confidence in the overall system.
The risk here is that the banking crisis — or “recent events in the banking system,” per Powell, who studiously avoided the c-word — will wind up doing the Fed’s job for it.
“Powell is trying to have it both ways,” said Joe Gilbert, portfolio manager at Integrity Asset Management, per Bloomberg. Powell needs to make the market believe that the rate hike is not because financial conditions will be loosened too much.
Meanwhile, Wall Street also appeared to react negatively to Yellen, who was across town telling lawmakers that officials were not considering expanding bank deposit guarantees beyond the FDIC’s current $250,000 limit.
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