The June meeting of the Fed was a bit tense about slow inflation progress

Inflationary-Recession-Spending-Interest-Rates Sensing Interest Rates: A Comment on Rebecca Veverka

Americans piled up savings in the early months of the pandemic when a lot of spending was off limits and the government was sending out relief payments.

Over the last year, those savings helped many people maintain their spending despite rising prices and interest rates. Wells Fargo economists say that the savings may be ended soon.

“Whether the pandemic-related buffer runs dry by the end of this year or the start of next, households will still have the ability to spend at elevated rates,” Wells Fargo said in a research note Monday. It will come with an increase in household finances.

“I’m in a place right now that I can manage, but if things get worse, I’m not sure what to do,” Veverka says. She drew down money to pay off her credit card debts.

Rebecca Veverka has been pinching pennies in her entertainment and travel budget to make ends meet. The Parma, Ohio resident has canceled most of her TV streaming services and just subscribes to one at a time. She’s also opted not to visit a friend in Washington state this summer.

Source: https://www.npr.org/2023/07/04/1185772029/economy-inflation-recession-savings-spending-interest-rates

Inflation, Growth, and Jobs: What is Happening in the US Economy and Why is the Fed Trying to Fight It?

Consumer spending accounts for two-thirds of economic activity and is helping keep the economy afloat. But the consumer life-raft may be losing a little air.

“Uncertainty is our biggest enemy at the moment,” says Tim, who conducts a monthly survey of factory managers for Institute for Supply Management.

The impact of rising interest rates on industries like housing and manufacturing will continue as the Fed’s aggressive actions continue to affect the economy.

The nation’s gross domestic product grew at an annual rate of 2% in the first three months of the year — down from 2.6% at the end of last year and 3.4% in the third quarter of 2022.

Employers are having to pay more to attract workers, although wage growth has slowed in the past year. The average private sector wages were slightly higher in May than they were a year ago.

Demand for workers may be cooling. The last six months have seen a slightly slower pace of job growth. There are still more open positions than unemployed workers, which is why job openings have declined.

Many industries such as health care and hospitality have continued to expand. And even those that are struggling are reluctant to lay off workers for fear it will be hard to hire them back when business rebounds.

Employers added more than 4 million jobs in the last year, or about 338,000 jobs a month. The lowest unemployment rate in a long time has been 4% for 16 months.

At their last meeting, the Fed policymakers decided not to raise interest rates but indicated that they will probably do so again by the end of the year.

The Fed is in a difficult spot at the moment. Inflation has come down noticeably even on an overall basis, but that’s because food and fuel prices are cooling off. The measure that takes core inflation out of the equation is making progress more difficult. That has caught the Fed’s attention, especially given signs that the broader economy is holding up.

Last summer the US was faced with the highest inflation in four decades. Gasoline prices had hit an all-time high, topping $5 per gallon in the wake of Russia’s invasion of Ukraine, and the cost of a Fourth of July cookout was soaring.

The job market is strong, with unemployment near a half-century low. But inflation — and the Federal Reserve’s efforts to fight it — are keeping recession fears alive.

“Core inflation had not shown a sustained easing since the beginning of the year,” Fed officials noted at the meeting, according to the minutes, and they “generally” noted that consumer spending had been “stronger than expected.” They heard differing reports from businesses, with some reporting weakness in the economy and others reporting strength.

Officials noted that price increases for goods — physical purchases like furniture or clothing — were moderating, but less quickly than expected in recent months. The low for sale housing inventory and the less than expected deceleration in rents for lease signed by tenants made some officials worried that rent inflation would come down less than expected. “Some” Fed officials noted that other service prices “had shown few signs of slowing in the past few months.”