This week the Fed will meet
The October Jobs Report: Implications for the Labor Market Rebalancing and Inflationary Models of a Pre-Pendemic Economy
Tomorrow, when the Bureau of Labor Statistics releases its October jobs report, it will be the last major read of the economy before the midterm elections — and will cap a week of new data signaling that the white-hot labor market is showing only tentative signs of cooling off.
The US economy is expected to have added 200,000 jobs in the month of October, which would be down from the 263,000 jobs added in September but above the pre-pandemic average. It’s expected that the unemployment rate will increase to 3.6% from 3.5%, which is close to a half-century low.
Things are not slowing down as much as they were during the pre-pandemic normal times. And that’s part of what is keeping inflation elevated.
“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.
Higher wages mean higher inflation as companies pass on higher costs to their customers, so in this good-is-bad economy, inflation and unemployment have the opposite relationship. Investors worry that a strong jobs report could fuel Fed officials to accelerate their rate increase campaign.
If it comes in below 250K, you might see some renewed optimism that the Fed’s policies are working and may not need to continue hurting the economy.
The Prospects of a High-Energy Electric Autonomous Truck: Ford’s F-150 Lightning Spectroscopy
The situation is very delicate and difficult to overstate. Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), described the world as going through a periods of economic fragility after a string of shocks over the last two and a half years.
The central bank is expected to hike rates a quarter of a percentage point, which is less than half of the rate rise it made in December. The Fed’s rate hikes will likely end soon, due to the slowing in the pace of monetary tightening. That would be great news for the economy, and a smart move for a few different reasons.
Ford is, once again, raising prices on its first electric pickup, the F-150 Lightning. The entry-level model will be priced at around $52,000, more than double the price when the truck went into production this spring.
The state media has reported that President Alexander Lukashenko banned consumer price increases. Any price increase is forbidden from today. Prohibited!” the president is quoted as saying.
The Last Nightcap: Peloton isn’t going to have a Stand-Alone CEO for Next-Generation Intelligence
A source familiar with the negotiations said that lawyers for the two companies have agreed to hold off on Musk’s deposition. Musk offered to buy the company under the previous terms of the deal in exchange for scrapping the litigation in order to give a deposition today. The two sides are haggling over things.
Boston Dynamics has pledged not to weaponize their product and is encouraging other companies to do the same. According to a letter Axios reviewed, the company suggests it’s worried that customers don’t, like, believe them when they say they’re not building an army that’ll destroy humanity. They have said they are not doing that. It’s over!
After letting go of another 500 people, it will only have about 3,800 employees, which is less than half of its peak. The company said the latest cut marks the last of CEO Barry McCarthy’s \major changes to restore the brand. And if it fails, McCarthy told The Wall Street Journal, Peloton likely isn’t viable as a stand-alone company. He’s giving it another six months.
Source: https://www.cnn.com/2022/10/06/business/nightcap-jobs-report/index.html
Inflation and the Fed: Implications for the Rate of Interest Rates and the Cost of Living in a Wall-Centric Warehouse
CNN Business is owned by CNN. The warehouse where Amazon suspended 50 workers was the only one that was unionized. Workers reported that the smell of smoke still lingered in the building, despite the fact that the fire had been put out. 100 workers walked off the job.
In order to slow inflation, the Fed should slow down its rate hikes because the level of interest rates needed is not known. 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. 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.
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 remained high.
“Central banks will continue their aggressive tightening cycle into early 2023 before pausing as inflation falls and job losses mount,” said mutual fund giant Vanguard in a report Monday. “Most central banks will be reluctant to cut rates in 2023 given the need to cool wage growth.”
Fed policymakers voted unanimously to raise their benchmark interest rate by a quarter percentage point to just under 5%, which will make it more expensive for people seeking car loans or carrying a balance on their credit cards.
Greg McBride, Chief Financial analyst at Bankrate, said 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.”
Inflation fell to 7.1% last month after hitting a four-decade high of 9% in June. That’s the smallest annual price increase in 11 months.
The Case for a Boom in the Real Economy: Job Openings, Hiring, and Layoffs in Kansas City and the Problem of the Federal Reserve
“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.”
In an interview on CBS on Sunday, Treasury Secretary Janet Yellen mentioned the risk of a recession. But it certainly isn’t, in my view, something that is necessary to bring inflation down.”
George was in the camp of steadier rate increases and slow rate increases to see how the effects of a lag will unfold. I’m concerned that a succession of super-sized rate hikes might cause you to over steer and not be able to see the turning points.
In a pointed exchange, Sen. Elizabeth Warren, D-Mass., questioned Powell about the potential job losses that could result from aggressive rate hikes.
Kansas City homebuilder Shawn Woods said his company has gone from selling a dozen houses a month before the Fed started raising rates to fewer than five.
“Never in my wildest dreams would I have thought we’d go from 3% [mortgage rates] to 7% within six months,” said Woods, president of Ashlar Homes and the Home Builders Association of Kansas City.
“I think we’re in for a rough six or eight months,” Woods said. “Historically, 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.”
Take a survey on job vacancies, quits and layoffs. The report surprised economists who had predicted that the number of job vacancies would go down because the Federal Reserve was trying to slow business growth. Instead of dropping to 7 million, it went to 10 million.
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).
Even though the US economy is running very well, there is still a chance that it could fall into a recession, warns former Treasury Secretary Larry Summers.
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 think the country is in a recession.
More bad news for first-time homebuyers in the Millennial and Gen Z Era: The problem has broken and the economy is changing
More bad news for the younger Millennial and Gen Zers hoping 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.
(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.)
Those who were lucky enough to close on a home in the crush of competition will count themselves lucky once the housing boom ends.
Here’s the deal: On Thursday, a new report showed that first-time buyers made up just 26% of all homebuyers in the year ending in June — an all-time low over the four decades that the National Association of Realtors has been conducting its survey.
“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.”
Oh yeah, one other thing: In addition to mortgage rates going up, home prices also shot up, with the median peaking at $413,800 in June. (Imagine your starter home clocking in at 400 grand!)
Housing is broken. There is a clear focus on inventory constraints and outdated rules as a part of the problem.
Rather than rebuilding within existing neighborhoods, housing supply has expanded through “sprawling single-family subdivisions at the urban fringe.” The areas with the greatest risk of wildfire in the West are those that have more people and homes in them.
As affordability reaches crisis levels, now is a good time for federal and local governments to rethink the way we frame the American Dream. If elected office is better represented for the Millennials and Gen Z then that will happen. Schuetz says that the upper-middle class Boomers are reluctant to change the system that got them where they are.
The First Mile of a Marathon: Inflation, Demand, and Post-Prime Job Search in the U.S. Central Bank Economy
There is more central bank drama to consider, as the Bank of England and European Central Bank will meet on Thursday to make their decisions on whether or not to raise rates again to fight inflation.
On Wednesday, the Minneapolis Federal Reserve President said he was open to the possibility of a bigger interest rate hike at the Fed meeting in March. (That’s a quarter or half of a percent. A basis point is one hundredth of one percent).
The first mile of a marathon is important, but not bad news. The latest report bodes well for the economy and could mean that a soft or soft-ish landing, where inflation eases without recession, is still achievable. That’s also good for markets.
Many people who retired in the last two years are not going to find gainful employment. With the supply of workers constrained, the Fed is trying to restore balance by tamping down demand.
A Crypto Winter for Wall Street Values and Virtual Currency: Predictions from the Bell’s Before the Bell Newsletter Revisited
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 an audio version of the newsletter by clicking the same link.
Stocks surged on Thursday in their best day since 2020 after a key inflation indicator came in softer than expected. The investors interpreted the report to mean that the peak inflation may be behind us. That means the Federal Reserve could be less aggressive with its rate hikes.
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.
This isn’t the first time there has been a so-calledCrypto winter. The last few years have been volatile for the prices of virtual currency, but they are still doing better than most stock market indexes.
That’s because those assets have got hit just like stocks and bonds, proving that there is no place to hide in a market that fears rate hikes and a recession.
The Digital Thaw: Bitcoin and the Decline of the Cost to a Home in the U.S. After the Covid-Era
A crypto thaw: Bitcoin soared through the Covid-era on the wings of near-zero interest rates, stimulus cash and a big influx of investors from large-scale institutions. It reached a record high of nearly $70,000 in November.
The dollar strengthened as the central banks started raising rates to fight inflation, which made investors think of it as a safe haven. At the same time, the economy began to sour and those new investors who still viewed bitcoin as a risky asset exited in droves.
“Bitcoin and ethereum went straight up and down but they have still gained a lot from mid-2020. Over that longer time horizon, digital assets are still outperforming tech stocks,” said Jeff Dorman, chief investment officer at Arca, a firm that specializes in crypto.
Because of this drastic change in the cost to finance a home, sales have dropped for eight months running, according to the National Association of Realtors. A record low number of people think this is a good time to buy a home, according to a survey from Fannie Mae.
The traders think the increase will be a half-point. Federal funds futures on the Chicago Mercantile Exchange show an 80% probability of a half-point hike.
It may not be that easy. The government reported Friday that a key measure of wholesale prices, the Producer Price Index, rose 7.4% over the past 12 months through November. That was a bit higher than the expected rate of 7.2% but a marked slowdown from the 8% increase through October.
The consumer price index data for November will be released the same day as the Fed announcement. Year-over-year, the consumer price index rose 7.7% in October.
“Inflation has probably peaked but it may not come down as quickly as people want it to,” said Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research.
Key Economic Results from the U.S. Consumer Price Index and Retail Sales: How Do Americans Get Their C$Lambda$?
Wednesday: Fed meeting; EU industrial production; UK inflation; earnings from Lennar
(LEN) and Trip.com
(TCOM)
“A pivot or pause is not a cure-all for this market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. It might be too late for rate cuts. Recession risks are still relatively high.”
On the consumer front, two key economic reports — the Consumer Price Index read on inflation and retail sales — come out Tuesday and Thursday. More information about the health of American consumers will be given by those numbers. Despite the price increases, are they still shopping?
It is possible consumers were just getting started 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 talking about inflation this year. The CEO of Comgest Global investors said that disinflation will become more important in the years to come.
The Stock and Bond Markets of the Fourth Year: What Does That Mean for Cosserat and Why Does He Need to: When Will He Be able to Maintain Profit?
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 believes that the two stocks that his firm owns are both perfect for that criteria.
Friday: Eurozone PMI; UK retail sales; earnings from Accenture
(ACN), Darden Restaurants
(DRI) and Winnebago
(WGO)
Stocks rallied sharply in October and November due to hopes that the Fed would begin to scale back on the size of its rate hikes. They have been more volatile than usual so far in December, with the stock market still down sharply for the year.
Long-term bond yields have eased as well, with the yield on the 10-year US Treasury edging back down to about 3.5% after moving above 4.3% in late October. That was the highest the 10-year has been since 2008.
The focus on macroeconomics will shift away from fears of a Fed tightening to how bad growth is and earnings will fall before global central banks may be able to provide some assistance, said Tom Essaye, founder and editor of Sevens Report investing newsletter.
Sam Bankman-Fried, the FTX founder, will be testifying in front of the House Financial Services Committee on Tuesday. The Senate Banking Committee will hold its own FTX hearing Wednesday, but Bankman-Fried is not currently on the list of witnesses set to appear.
The Fed’s Benchmark Rate Rises and What Happens When We Close: The CP Violation Paradox Revisited
Maybe investors will be able to relax and take a deep breath before the Fed announcement and press conference later that day. Although there is no guarantee of that.
After spending much of last year playing catch-up, policymakers are shifting to a more cautious approach, as evidenced by the smallest hike in the Fed’s benchmark rate since March.
The economy has not been effected by the Fed’s rate hikes so far. The job market is healthy, wages are growing, Americans are spending and GDP is strong. Business is also good: Companies are largely beating revenue expectations and reporting positive earnings results.
The Swiss National Bank is expected to follow the United States in making a half-point move on Thursday. Borrowing costs in the Philippines and six other countries will probably increase this week.
The hike, smaller than the previous four increases, comes after the latest government reading showed inflation is running at its slowest annual rate in nearly a year.
“It’s clear there is more work to do,” Daly said in a speech at Princeton University. Policy tightening, maintained for a longer time, will likely be necessary in order to put this episode of high inflation behind us.
The Rise of the U.S. Consumer Prices: After a Deep Pandemic, the Fed is Rejoind in its Predictions for the Next Few Years
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. A record amount of monthly payments have been made by used car buyers, who are charged an average interest rate of 9.34%, compared to 8.12% last year.
“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.
Stocks plunged earlier this month after the closely watched November jobs report showed a resilient labor market. The number of Americans who filed for unemployment benefits fell in the week, which suggests there is still a tight labor market.
After hitting a four-decade high of 9% in June, inflation is showing some signs of easing. Gasoline prices have fallen sharply, and so have the prices of certain goods such as used cars and televisions.
The Fed believes that shelter inflation may be behind us. The market rent increases have slowed since the spring.
While some prices have come down, the overall cost of living is still climbing much faster than it was before the pandemic. At 7.1%, the November inflation rate is well above the Federal Reserve’s 2% target. The economy was shut down in February 2020 when the rate of inflation was three times that of February 2020. The rising cost of services such as haircuts and restaurant meals is particularly worrisome, since that’s largely driven by labor costs, which tend to be stickier than volatile food and energy prices.
“We see goods prices coming down,” Powell said. “We understand 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. It’s going to take some time.
Powell has described the job market as out of balance, with more job openings than there are available workers to fill them. While the U.S. economy has now replaced all of the jobs that were lost during the pandemic, the share of adults who are working or looking for work has not fully recovered.
Inflationary Pressure and the Decay of the U.S. Economy in the Eight-Year Aftermath of the First Half of the Cold War
Even though there are signs that the Federal Reserve’s action to slow down inflation may finally be working, prices are still climbing much faster than before.
The central bank raised interest rates for the seventh time in nine months on Wednesday, making it clear it would do whatever it took to bring inflation down.
Gasoline prices have dropped sharply and are now lower than they were before Russia’s invasion of Ukraine. The prices of other goods like used cars and televisions have fallen, as pandemic kinks in the supply chain come untangled. When the demand for tickets waned, and when travelers became more price-conscious, the prices for things like airplane tickets and rental cars dropped.
He said that he didn’t think anyone knew if we were going to have a recession or not.
Changes in the weather or the war in Ukraine could cause big swings in prices at the gas station and the grocery store. Slow or faster economic growth around the world could cause prices of crude oil and other commodities to change.
What happens to the wages is a very important factor in 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 is Happening in the Economy and Labor Market? Jon Stewart’s The Daily Show Revealed the Fed isn’t Going to Recession
What’s happening: Low unemployment rates and wage growth may appear to be good for an economy that’s close to recession, but has actually proven bad for markets.
Jon Stewart, former host of The Daily Show, believed that the Fed was committed to this and that it could cause a high unemployment recession.
Powell warned that the job isn’t done and that the labor market is too tight for his liking. it would be “very premature” to think “we really got this,” he said, adding that unless the economic trajectory changes drastically, he doesn’t expect to cut rates this year.
“Employment has yet to soften notably, but I think the jobs data is likely to deteriorate meaningfully and quickly,” said finance professor Jeremy Siegel of The Wharton School of the University of Pennsylvania in his weekly commentary for WisdomTree last week.
“This is what the path for a soft landing looks like,” says Aaron Sojourner, an economist at the Upjohn Institute for Employment Research. Inflation has come down but there isn’t a recession.
Bankman-Fried is expected to agree to extradition to the US, the person said. Kara Scannell reports that Bankman- Fried would withdraw his fight on Monday.
The federal prosecutors in New York charges Bankman-Fried with eight counts of fraud. 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.
Bankman-Fried has been accused of deceiving investors and customers by building a house of cards on a foundation of deception.
Super Saturday, December 17, 2010: A Busy Holiday Season for Fashion Stores and Online Retailers Compared to Warehouses and Distribution Centers
The Saturday before Christmas — also known as Super Saturday — is typically the busiest shopping day of the November-December gift-buying period. This year, Super Saturday is on December 17th, due to Christmas Day and Christmas Eve both falling on a Sunday. More than 158 million consumers are estimated to shop that day, according to the National Retail Federation.
Half of gift purchasing has been completed, according to the NRF. With less than a week to go until Christmas Day, and drop-dead shipping deadlines approaching, people have a lot more buying to do.
It’s also costly for retailers to sit on an oversupply of merchandise for too long. Retailers who own and operate warehouses and distribution centers have a lot of space left to work with, but some wiggle room to accommodate excess inventory. But costs add up if more space is needed for a protracted glut that they can’t quickly clear out.
Also, unsold products lose value over time. That’s the case with fashion clothing, as savvy shoppers will no longer buy style if the trend has passed. Stores are forced to discount, which is bad for profitability.
Stores were offering discounts of 50 to 60% off, and tacking on free shipping for online orders, ahead of the final full weekend before Christmas.
“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.”
Summary of Economic Projections from the Fed Open Market Committee at the 12th Meeting on Fed Rate Policies and Expanding Maturity to Wall Street
That puts the Fed’s laser focus on the job market in play, which could make the central bank more likely to raise the federal funds rate sooner rather than later.
However, a “structural labor shortage” remains a major headwind, Powell noted in December, attributing the lack of workers to early retirements, caregiving needs, Covid illnesses and deaths, and a plunge in net immigration.
Employers are hesitant to lay off workers because they are too scared, and other areas of the economy are in a good place that can hire people quickly, according to Mayfield.
“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 Federal Open Market Committee has eight regularly scheduled meetings per year. The monetary policy actions that are announced to the public during the second day of the meeting are overseen by Chair Powell and the 12-member group.
Below are the meetings tentatively scheduled for 2023. The meeting’s Summary of Economic Projections is an important part of the meeting and includes a chart known as the “dot plot”.
Traders are betting on a further deceleration in jobs growth because that could lead to a reduction in the size of interest rate hikes by the Federal Reserve.
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.
The weak report on the health of the manufacturing sector, along with signs of strength in the jobs market, 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.
The level of wage growth will also be under scrutiny. An increase in worker compensation historically tends to lead to more inflation. Consumers can afford to pay the higher prices that companies charge for their products and services if they have more disposable income.
The persistent mismatch between labor supply and demand continues to put upward pressure on wages, according to a report.
A report by strategists at the BlackRock Investment Institute also noted that inflation for services companies (think retail, banking and tech, among others) is likely to remain “sticky due to worker shortages fueling wage growth.”
The number of jobs added may not matter to the Fed because they will focus on worker pay in the jobs report. Wall Street may do the same.
Amazon, Meta Platforms, and Aldi: Where are the UK tech giants after the last big recession? An employee survey of salesforce
A number of major tech companies have recently announced job cuts, including Amazon and Meta Platforms. Amazon
(AMZN) confirmed late Wednesday that it was laying off more than 18,000 employees.
The thought was that businesses and consumers would continue to spend on technology even as the economy rebounded from a brief recession in 2020.
Now, though, recession alarm bells are sounding once more as inflation and rate hikes take their toll…and tech companies realize that they may have not factored that in to their budgeting plans.
In a recent note to employees, the chair and co-CEO ofSalesforce said that the company hired too many people leading into this economic downturn.
There are different phases for companies that last a long time. They’re not in heavy people expansion mode every year,” Amazon CEO Andy Jassy said in a memo shared with employees.
The world 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.
According to Anna, investors in Europe think that the pace of consumer price increases is starting to slow in France and Germany. The decline in energy prices is leading to the reversal.
Still, consumers continue to bear the brunt of higher prices. CNN’s Hanna Ziady reports that European supermarket giant Aldi just had its best December ever in the United Kingdom as British shoppers, feeling the pinch of inflation, flocked to the German discount grocer. Aldi said Brits bought more than 48 million mince pies, for example.
The Strength of the Labor Market: Predicting the End of the Year with $0pm$ Pay, Wage Growth and the Rate of the Fed’s Implications
We’re in the salad days of the New Year — that period where many feel refreshed and motivated and perhaps even optimistic about the year to come. There’s a certain clarity that comes during this time in January.
That said, the big question weighing on everyone’s mind is whether or not the United States will enter a recession this year. The health of the economy will be determined by three big things: The strength of the labor market, the American consumer and the Federal Reserve.
Jobs has been the word of the week as investors look at a slew of data indicating a strong labor market that is resistant to the Fed’s 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. If job numbers come in as expected on Friday, 2022 will be the second-best year on record for job growth.
The second in command at the International Monetary Fund, Gita Gopinath, urged the Fed to continue with rate increases this year because of the resilience of the labor market.
So will wages moderate this year? Analysts believe that they will. They think that unemployment will grow to 4% by the year’s end and wage growth will slow from about 5% to 4%.
Source: https://www.cnn.com/2023/01/06/investing/premarket-stocks-trading/index.html
Premarket stock markets: How will the US economy go off the economic wall in 2021-2022? The most recent Fed data released by the Bank of America
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.
In November, sales fell 0.6%, the weakest performance in nearly a year. Analysts say weak sales will continue and retailers earnings will suffer if they do.
Disposable income fell from the spring of 2021 through the summer of 2022 as inflation outran wage growth and pandemic savings dried up. While American bank accounts are still fairly robust, consumers are borrowing more. Credit card balances increased by 15% over the third quarters of the previous year. That jump is the largest since 2004, when the New York Fed began tracking the data.
The answer to this question will help determine what will happen in the markets this year as well as 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.”
Source: https://www.cnn.com/2023/01/06/investing/premarket-stocks-trading/index.html
CNN Knows Bath & Beyond Will File For Bankruptcy in the Next-Generation Home Goods Chain: Steven Kamin
The average rate for a 30-year fixed-rate mortgage was 6.48 during the week of January 5, according to Freddie Mac. The 30-year fixed rate has gone up and down over the last year.
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.
There is “substantial doubt about the company’s ability to continue” because of its worsening financial situation, the home goods chain said in a regulatory filing.
But the Wall Street Journal reported that Bed Bath & Beyond is preparing to file for bankruptcy within weeks, citing sources familiar with the matter. CNN asked Bed Bath & Beyond if there was anything they could say.
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 in charge of the international finance division of the Federal Reserve from 2011 to 2020. The opinions expressed in this commentary are his own. View more opinion on CNN.
The Federal Open Market Committee report of Fed policy resummation, inflation and the Fourth Valentine’s Day of the US Economy
Wage gains have slowed in recent months despite a tight job market. It helps to ALLay fears that wage gains will put more pressure on prices, as happened in the 1970s.
The decision at the conclusion of the Federal Open Market Committee’s first meeting in 2023 is the return to a more traditional interest rate policy after several months of large rate increases meant to cool the economy.
Powell believes it is difficult to manage the risk of doing too little and not getting the job done.
US markets jumped after the press conference, signifying investors expect a dovish Fed going forward. The S&P 500 was up 1.1% on the first day of February after notching its best January in four years.
The core prices which include food and energy were 4.4% higher in December than they were last year according to the Fed. That’s down from a 5.2% annual rate in September.
Chris Waller said that the Fed doesn’t want to be head-faked. In 2020 we saw relatively lowcore inflation readings before it exploded into our face.
This could be the bestValentine’s Day ever, because central bankers discussing inflation could make your heart skip a beat. Four members of the Federal Reserve (although not Fed Chair Jerome Powell) spoke on the economy today.
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 that inflation is not as high as it could be, but 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.
Pennsylvania Fed President Patrick Harker: “We are not done yet” — and a possible successor to Lael Brainard as Fed vice president
Philadelphia Fed President Patrick Harker sounded a little more dovish (i.e. less concerned about inflation) than Logan. He is a voting member of the FOMC this year. Harker said in a speech Tuesday that “we are not done yet” with rate hikes but added that “we are likely close.” Harker said that at some point this year, he expects the policy rate to be restrictive enough for us to keep rates in place.
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.
Along those lines, Williams said that there will likely be “a period of subdued growth and some softening 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 unemployment rate is 3.4%.
At a time when the Federal Reserve is hiking interest rates to keep prices in check, all that spending threatens to put more upward pressure on inflation.
A drop in consumer spending would help to cool inflation, but it would also raise concerns about a recession. If spending continues to grow at this pace, it could cause the Fed to increase rates more aggressively in order to bring prices under control.
The Commerce Department reported on Friday that personal spending increased in January as consumers spent their money on both goods and services.
Lots of people have money to spend because of the strong 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.
According to Jonathan Silver, who tracks credit card use by about 100 million people in the country, extra income will help to support consumer spending in the months to come.
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 huge amount of extra cash despite the decrease in bank balances.
“Households have about ten months of spending power if they deplete their excess savings at the rate they have over the past six months,” economists from Wells Fargo wrote in a research note Friday.
Why do people in Las Vegas travel so much during the pandemic? A survey by McMillon, Mitchell, Shepherdson, and Shepherdson
People who put off traveling during the worst of the pandemic are making up for lost time. Vacation visits to Las Vegas jumped more than 20% last year.
The CEO of the Las Vegas Convention and Visitors Authority says people realized what they were missing during Covid. I think it has brought about a lot of energy in getting 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.”
Nobody is flush with cash. Some people are struggling. Businesses are not confident that consumers will be spending money the way they used to.
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,” McMillon told analysts this past week. We don’t know what the back half of the year looks like.
Restaurant owner Cameron Mitchell is similarly cautious. Mitchell, who operates dozens of restaurants ranging from high-end steakhouses to more casual Mexican eateries, has noticed diners appear to be gravitating to his less expensive outlets.
“That’s just what my gut is telling me as an operator,” Mitchell says. The people knew we had to raise our prices a year ago. It was obvious and they were accepting of that. The consumer is about to change. I think people want inflation to come down and they are not as tolerant any more of price increases.”
“I was surprised that some people would leap on the January numbers and claim that the economy isn’t responding to the Fed’s interest rate increases,” says Shepherdson. “I think the trends are, from the Fed’s perspective, quite favorable. The growth of the economy is slowing. Inflation is going down. But these things never happen in a straight line.”
Wall Street is Bound: Predicting Hell Week With Job Openings, Hirts, Jobs and Exit From the Mechanized Economy
Wall Street investors are gearing up for their version of Hell Week — a torrent of jobs data coming over the next few days could easily lead to volatile market swings.
What to expect: ADP’s private payroll report for February and the JOLTS job openings, hires and quits report for 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.
“We’re stuck in the messy middle.” said Josh Hirt, senior US economist at Vanguard. Core areas of the economy are still showing resilience despite the fact that activity in the most interest rate-sensitive sectors has weakened. The economy has not fully worked through the impact of rates.
By the end of this year, he is hopeful that the unemployment rate will be in the range of 4.5 to 5%, a rise from its current 54-year low.
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.
A preview of the report shows that the Fed chair is going to reiterate that there is more that can be done to bring down inflation.
Congress uses the president’s budget to help shape spending priorities for the year ahead. Wall Street investors will probably pour over the document to understand what may be happening in the market.
Biden’s budget will increase taxes on the ultra-wealthy to help offset rising costs for Medicare, Social Security and health care. 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.
The Fed’s Wile E. Coyote Moment: When the Economy is Running Hotter than Expected, and Why the Fed is Failing
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. She said there was a range of responses from fearing the actions will tip the economy into a recession to not being enough to get the job done.
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 said that he believes the Fed needs to raise it’s policy rate by half a percent 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.
In the US economy, it could be referred to as a Wile E. Coyote moment because of the dog’s relentless pursuit of the fast Roadrunner off a cliff and into mid-air.
A flurry of surprisingly strong economic data was available in the weeks after that meeting, showing blockbuster job gains and hardy consumer spending.
Summers said his best guess would be for the fed funds rate to grow from its current range (4.5% to 4.75%) to 5.5%, but noted he “wouldn’t be amazed” if it were to hit 6%, given the uncertainties in the economy.
The Senate Banking Committee is about to hear testimony from a man who is warning that the economy is running hotter than expected despite aggressive action from the Fed.
She noted the Fed’s own December forecast showed the unemployment rate climbing to 4.6% by the end of this year. Warren said that would mean putting 2 million people out of work.
“You are gambling with people’s lives,” she said. There’s only one solution and that’s lay of millions of workers. We need a Fed that will fight for families.”
Inflationary Dynamics in the Light of the European Central Bank Rate Cuts and Congress’s Call for a High-Cost Wall Street
The Republicans want to raise the debt ceiling if the government doesn’t cut spending. Democrats said the GOP is putting the federal government in a position to default if the debt ceiling isn’t raised.
“Congress really needs to raise the debt ceiling. Powell said that was the only way out. “If we don’t do it, the consequences could be difficult to estimate, but they are still potentially bad for the environment.”
That’s the approach the European Central Bank took last week, when it followed through with plans to raise rates by half a point even as one of Europe’s biggest banks, Credit Suisse, was swept up in the market mayhem.
What’s the rate of inflation? Inflation means that the dollar will not go as far tomorrow as it did today. It’s an annual change in prices for goods and services such as furniture, transportation, food, and toys.
Is inflation bad? It depends on the situation. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How do 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 the stock market be affected by inflation? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
The Case of the Silicon Valley Bank and Signature Bank Gossip: The Fed’s Supervised Accountability and Risk-Management Problems
Stress in the banking system appeared to ease in recent days, however. Large withdrawals from regional banks have stopped according to the treasury secretary. And bank stocks have rallied this week.
These plans were scrambled after two weeks of banking troubles. Why? The lower the economy, the lower the value of financial assets. Some bank executives did a poor job planning for these asset declines, and their balance sheets suffered. When customers became worried that the banks would no longer have enough money to return their deposits, a classic bank run ensued. Silicon Valley Bank and Signature Bank both went belly up 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 Fed is also facing scrutiny for its oversight of the two failed banks. Fed supervisors reportedly identified problems with Silicon Valley Bank’s risk-management practices years ago, but the problems were not corrected and the California lender had to be taken over by the U.S. government after suffering a massive bank run.
Michael Barr is the Fed’s vice Chairman for supervision and said they need to have humility and conduct a careful review of how they supervised and regulated this firm.
Others have called for an independent probe of the Fed’s role in the bank failures. Senators Elizabeth Warren, D-Mass., and Rick Scott, R-Fla., have also proposed replacing the Fed’s internal inspector general with an outside inspector, appointed by the president.
“Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation,” the Fed statement said. The extent of these effects is unknown.
“Credit is the grease that makes small businesses’ wheels run and makes the overall economy run,” said Kathy Bostjancic, chief economist at Nationwide.
