The Fed and the White House are in bad shape because of inflation

The Fed Needs to Slow Inflation: Implications for Central Bank Rates and the Yellen Effect of the Third Quarter GDP Data

A second reason the Fed should be stopping rate hikes is that they don’t know the actual levels of interest rates that are 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. As a result of high food and fuel prices, developing economies are already experiencing a cost-of-living crisis and now American imports are becoming more expensive as the dollar strengthens.

The Fed chair spoke about how the Fed has to raise rates in a way similar to moving quickly to avoid colliding with something. Well, however dark that room was in 2018, it is a lot darker now. The consequences of excessive monetary tightening are likely to be greater, as inflation is much higher and the forces driving inflation are more opaque because of the rise in business debt.

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, says a report. “Most central banks will be reluctant to cut rates in 2023 given the need to cool wage growth.”

There is a risk of a recession according to the Treasury Secretary in an interview with CBS on Sunday. It is not something that needs to bring inflation down, in my opinion.

During a one-on-one interview in Ohio that aired on CNN’s “Erin Burnett OutFront,” Yellen said the third quarter GDP data released Thursday underscored the strength of the US economy as policy makers urgently move to cool off pervasive and soaring inflation that has had a sharp effect on American views of the economy – and endangered the Democratic majorities on Capitol Hill less than two weeks from the midterm elections.

The Bureau of Economic Analysis reported that gross domestic product increased by an annual rate of 2.6% in the third quarter. The decline of 1.6% in the first quarter was followed by a negative 0.6% in the second.

The Yellen-Biden Message to the United States after Covid-19: How the Economy and Private Sector Drive the Growth and Growth of the State

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

It’s a reality that has undercut efforts by the administrationto take advantage of what officials view as a robust record. Republicans criticized Biden after he told reporters the economy is strong as hell.

As the economy continues to grow, those efforts will be felt in the months and years to come. When asked if the administration had a message for Americans, she said yes.

Many families in the United States could have faced problems that we could have avoided. The problems we do have are not because of what the Biden administration has done. Sometimes one doesn’t get credit for problems that aren’t there.

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.

Even as she acknowledged they would take time to full take effect, she listed off a series of major private sector investments including the $20 billion Intel plant opened a few hours drive outside of Columbus.

“But you’re beginning to see repaired bridges come online – not in every community, but pretty soon. Many communities are going to see roads and bridges improved. We’re seeing money flow into research and development, which is really an important source of long term strength to the American economy. She said America’s strength is going to increase and we will become a more competitive economy.

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

The Debt Ceiling as a Test of Remaining Under the Influence of the U.S. Senate, with an Emphasis on Improving the Economy

House Republicans have promised to use their leverage should they win back the majority, making reference to the battle lines drawn this week over raising the debt ceiling.

Through legislation, Yellen has backed away from the idea of doing away with the debt limit. A group of House Democrats wrote to Democratic leaders to request that action in the lame duck session of Congress, but Biden rejected the idea this week.

She made it clear that she wouldn’t be leaving the administration as soon as it moved to a time when top officials usually leave. Asked about reports she had informed the White House she wanted to stay into next year, Yellen said it was “an accurate read.”

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

The Fed’s anticipated action would increase the rate that banks charge each other for overnight borrowing to a range of between 4.25% and 4.5%, the highest since 2007.

“Interest rates have risen at a rapid clip and we are not done yet,” said Greg McBride, chief financial analyst at Bankrate. “It’s not going to be easy to bring inflation down from the lofty levels, even once we start seeing some improvement.”

The Fed’s preferred measure for inflation was 6.2% in September, which was unchanged from the month before. The consumer price index shows prices rising at an annual rate of 8.2%.

The Fed and the Real Estate Market: Why Rate Increases Aren’t Just Forgettable, And Why Do They Happen When Demand Continues to Rise?

Esther George, the president of the Federal Reserve Bank of Kansas City, said there is a savings buffer that households may be able to utilize if demand continues to rise. “That suggests we may have to keep at this for a while.”

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

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

“We are deeply concerned that your interest rate hikes risk slowing the economy to a crawl while failing to slow rising prices that continue to harm families,” Sen. Elizabeth Warren, D-Mass., and colleagues wrote in a letter Monday to Fed chairman Jerome Powell.

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.

In his wildest dreams, Woods would have never thought that he’d see a 4% mortgage rate within six months.

Woods said that they’re in for a rough six or eight months. “Typically, housing leads us into downturns and it leads us out of downturns. From a housing perspective we’ve probably been in a housing recession since March or April.

Cut to 2020 and that narrative got flipped on its head. It was not because they didn’t want homes in the suburbs, but they couldn’t afford 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.)

The Reality of Homebuying: The Rise of the Great Recession, and How Generation Z is Changing the Household of the American Dream

It will be extremely fortunate for those that have been able to close on a home as the housing boom ends to do so.

The share of first time buyers has ranged from 30% to 40% over the past decade. In 2009, in the middle of the Great Recession, it was high as 50%.

“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. Home prices were increasing this year, while mortgage rates were climbing.

Home prices shot up because of mortgage rates going up, with the median peaking at $413,800 in June. Imagine your starter home is over 400 grand.

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

The housing supply has been expanded through single- family subdivisions at the urban fringe. That’s putting more people and homes in environmentally vulnerable areas, such as wildfire-prone regions of the West.

As affordability reaches crisis levels, now is a good time for federal and local governments to rethink the way we frame the American Dream. But that will only happen if those who stand to benefit — Millennials and Gen Z — are better represented in elected office. Schuetz claims that the upper-middle class Boomers in power are unwilling to change the system that got them where they are.

The Fed Is Open to Rate Increases. But What Does It Really Tell Us About the State of the Economy? An Analysis in CNN Business before the Bell

The Fed raised rates by three-quarters of a percentage point in the last four meetings. There were two small rate hikes earlier this year. The central bank’s key short-term interest rate, which sat at zero at the beginning of the year, is now at a range of 3.75% to 4%.

At a meeting last Wednesday, the Federal Reserve President said that he was open to the idea of a bigger interest rate hike during the Fed’s March policy meeting. That is about a quarter or half of a percent. A basis point is one hundredth of one percent).

The Bureau of Labor Statistics will release their October jobs report tomorrow, capping a week in which there have been signals that the labor market is cooling off.

Hiring is surprisingly resilient. The unemployment rate fell to 3.8% in November, down from over 15% in the spring of 2020 when 263,000 jobs were added.

The Fed’s most aggressive monetary tightening in modern history — while driving up mortgage rates above 7% for the first time in 20 years, slowing business growth and crimping household spending — has barely made a dent in the labor market.

It is double the Fed’s usual quarter-points hike, and a noticeable increase will likely cause economic pain for millions of American businesses and households, pushing up the cost of borrowing for homes, cars and other loans.

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 survey, three-quarters of likely voters believe the country is in a recession.

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

The Rise and Fall of Bitcoin: Stocks, Bonds, and Neighboring Assets in the Context of Inflationary Times

Stocks surged on Thursday in their best day since 2020 after a key inflation indicator came in softer than expected. The report may mean that peak inflation is over for us, as investors broke out their party hats. The Fed could be less aggressive in its rate hikes.

Wednesday is the day when the Summary of Economic Projections will be released by the Fed. And they will watch Powell’s press conferences for clues about what’s to come — though they may end up sorely disappointed.

“If the Fed doesn’t have to tighten as aggressively, the economy will weaken less, and headwinds for stocks will be smaller,” wrote Bill Adams, chief economist for Comerica Bank in a note.

It was hoped that higher rates of interest and inflation would cause investors to shift away from the dollar and into alternative assets. They’ve been in for a rude awakening this year, reports my colleague Paul R. La Monica.

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

A thaw in the digital currency. Near-zero interest rates, stimulating cash, and a big amount of investors from large-scale institutions led to the rise of the new digital currency. In November, it hit a record high of nearly $70,000.

The dollar strengthened as the central banks started raising their rates to fight inflation and investors preferred it over other safe havens. At the same time, the economy began to sour and those new investors who still viewed bitcoin as a risky asset exited in droves.

Since the summer of 2020, the prices of the virtual currency have gone up. They’re up more than 80%…even though it has been far from a smooth ride. The Nasdaq, by way of comparison, is only up about 1% from July 2020 levels.

The National Association of realtors says sales have dropped for eight months because of the change in the finance cost for a home. Only 16% of people think it is a good time to buy a home, according to a survey by Fannie Mae.

Inflationary Warnings for the U.S. Producer, Consumer and Consumer Price Indexes: a Study of Global Market Expectations for 2023

Investors are now pricing in about a 70% chance of just a quarter-point rate increase at the Fed’s next meeting on February 1, according to Fed funds futures on the Chicago Mercantile Exchange.

But it might not be that simple. The Producer Price index, a key measure of wholesale prices, increased over the last year, the government reported on Friday. The growth was higher than expected but there was a moderation from the 8% increase through October.

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.

“This idea of peak inflation is starting to look like it’s valid,” said Thomas Martin, senior portfolio manager at Globalt Investments. How quickly does that come down?

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’s not too late for rate cuts. The risks of a recession are still high.

Economists are forecasting that retail sales will fall in October. It is important to put that number in a more context. Retail sales increased over the past year.

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

“Stagflation risks are seen as high across the US, EA and UK for the next 12 months,” said Deutsche Bank strategist Jim Reid in a report Monday about the bank’s investor survey on global market expectations for 2023. There is a strong consensus that the next US downturn will be in three years.

Stochastic Decays of Fashion and Beauty: What Do Investors Really Need to Know About The Fed and Fed’s Higher Orders?

What does that mean for investors? People should be looking for quality consumer companies that have the ability to maintain their profit margins and still have pricing power. He said that his firm owned two stocks that were perfect: luxury goods maker Hermes and makeup giant L’oreal.

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 are still down sharply for the year, though, and stocks have been more volatile so far in December.

The 10-year US Treasury’s yield fell back to about 3.5% after climbing above 4.3% in late October. The 10-year has been at its highest since 2008.

“The macroeconomic focus will shift from fears of Fed tightening to how badly growth slows and earnings fall before global central banks can hint at providing accommodation,” said Tom Essaye, founder and editor of the Sevens Report investing newsletter, on Monday.

Sam Bankman- Fried, founder of FTX, will testify before 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.

Fed Rate Hikes: When Will Markets Begin to Predict the Next Step? The Anomalous Case of the Low-Lying-Target Fed

Maybe investors will be able to relax and take a deep breath before the Fed announcement and press conference later that day. There’s no guarantee of that.

The hike in the Fed’s benchmark rate is the smallest since last March, and signals that policymakers are shifting to a more cautious approach, after spending much of last year playing catch-up and boosting borrowing costs at the fastest pace in decades.

The economy has withstood the Fed rate hikes. Wages are growing and GDP is strong as the job market is healthy. Companies are reporting positive earnings results as well as beating revenue expectations.

The Bank of England and the European Central Bank are likely to follow the United States in cutting their rates on Thursday. The borrowing costs of several countries are likely to 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.

The Fed Chairman said at a press conference that the board has a lot of work to do to get back to price stability.

Consumer Prices and Housing Pressures in the U.S. During the Decay of the First Rate Rate of Interest Rate Inflation

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 interest rate used car buyers are charged is 9%, which is higher than last year, and they are 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 Fed’s announcement of a rate hike caused the stock market to fall as investors began to think that there are more hikes to come. But stocks recovered and the major indices were mostly flat by mid-afternoon.

Inflation’s slow march downward has been welcome news to consumers as well, helping to perk up their economic sentiments during December, according to new data released Friday by the University of Michigan.

Fed officials believe the worst of shelter inflation may be behind us. Rents have been increasing since the spring.

The price of haircuts and dry cleaning both went up in the last twelve months. Services other than housing and energy account for nearly a quarter of all consumer spending.

Inflation and the Prices of Goods and Services: The Post-Pentacolumbolic U.S. Economy is Back

“We see goods prices coming down,” Powell said. “We understand what will happen with housing services. There is not much progress there, and the big story will be the rest of it. That is going to take some time.

Powell has said the job market is out of balance because there are more job openings than people 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.

Many older workers who retired in the last two years may not return to the job market. With the supply of workers constrained, the Fed is trying to rein in demand.

Despite the Federal Reserve’s recent steps to try to slow down inflation, Americans are still seeing prices rise much faster than they did before the epidemic.

On Wednesday, the central bank raised the interest rates for the seventh time in nine months as they continue to work to bring inflation down.

Gasoline prices have dropped sharply and are now lower than they were before Russia’s invasion of Ukraine. As the supply chain comes untangled, the prices of used cars and TVs have fallen. 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 Consumer Consumption Expenditure Index Indicator Rises 5.5% in November, and a Consistent Rise in the Cost of Services

He reckons nobody knows whether or not we’re going to have a recession or not and that it will be a deep one.

Changes in the weather or the war in Ukraine could cause big swings in prices at the store. Faster or slower economic growth around the world could also cause gyrations in the price of crude oil and other commodities.

The price of services is heavily dependent on what happens to wages. How many jobs are created each month, how many workers are available to fill those jobs, and how productive workers are all have an effect on that.

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

The Personal Consumption Expenditures price index, or PCE, rose 5.5% in November from a year earlier, the Commerce Department reported Friday. That’s lower than in October, when prices rose 6.1% annually.

PCE’s annual increases hit their lowest level in over a year in October, and there has been continued decline in other inflation indicators.

Friday’s report also showed that spending continued to rise 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. In November personal income increased by 4% but October’s was 0.7%.

The November PCE report, the last major inflation gauge released in 2022, provided a snapshot of an economy in transition. Tasked with reining in the highest inflation since the early 1980s, the Fed has undertaken a series of blockbuster interest rate hikes to squelch demand.

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

The Fed is concerned about wage growth, because they don’t think it is good for services prices, and overall inflation due to rising housing costs.

The October New Year: Manufacturing Activity and Consumer Perception of the Economic Incentivities in the U.S. After the Pandemic

The November new orders for manufactured goods dropped 1%), which was the biggest monthly drop since the onset of the Pandemic.

According to the report, transportation equipment accounted for some of the decline. New orders increase 2% without transportation.

Diane Swonk, the chief economist for KPMG, said on Friday that core durable goods orders slowed but did not contract as a result of growing unease in the economy. “Manufacturing activity has begun to contract and prelim reading for December suggests it will contract further at year end. A cold winter expected for the manufacturing sector.

The final reading of consumer sentiment was 59.7 in December, up slightly from a preliminary reading of 59.1 and the final reading of 56.8 in November.

“Consumers clearly welcomed the recent easing of inflation,” Joanne Hsu, director of the Surveys of Consumers, said in a statement. Consumers have been cautious in their judgements about whether sentiment will continue to go up or down.

Their outlook for the economy may have improved but it’s still weak. The sustainability of robust consumer spending is contingent on continued strength in incomes and labor markets in the quarters ahead.”

The consumer confidence index from the Conference Board, which is an indicator of how consumers are feeling about the economy, made its highest measurement in more than a year.

The spotlight was on the central bank as it was used to control inflation, as Fed Chairman Powell used rate hikes and quantitative tightening.

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

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 people because of the weakness in the economy, but other areas of the economy are showing strong growth and that allows those who are unemployed to be rehired very quickly.

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

“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 Fed Open Market Committee Meeting for 2023: Prospects for Big Data and Big Data Projections, and Implications for Jobless Claims

The Federal Open Market Committee holds eight regular meetings each year. The two day meeting of the Monetary Policy Committee takes place on the second and final day and will look through economic data, assesses financial conditions and evaluates monetary policy actions that are to be announced to the public.

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

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. The major US markets have suffered their worst years since 2008.

The new numbers show first-time applications went up to 225,000. That’s still low historically and almost exactly where jobless claims were a year ago, long before recession fears emerged.

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

The State of the Labor Market: From Gas Prices to Wall Street Rates and Wall Street Volatility During the June 1 Holiday Low-Cost Gas Market

The price of gas went over $5 a gallon for the first time in June. 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.

Wage gains have also eased in recent months, despite the tight job market. That helps to allay concerns that rapid wage gains might put more upward pressure on prices — as happened in the 1970s.

The fear is that the Fed will eventually overdo it, raising rates so high and keeping them there for so long that it causes a recession — if the Fed hasn’t already done that.

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.

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

Thursday morning is when weekly jobless claims numbers are released and investors want to know how the private sector job market is. Further strength could set off more alarm bells about inflation and Fed rate hikes.

The level of wage growth will also be under scrutiny. Worker compensation increases tend to lead to inflation. Consumers can afford higher prices for products and services if they have more disposable income.

The fact that wage growth rose only 4.6% over the previous 12 months in October was good news for investors. But year-over-year wage growth perked back up to 5.1% in November. Economists are predicting that wage increases cooled a bit, to 5% annually, in December.

“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 number of jobs added is likely to be the focus of the jobs report as the Fed focuses on worker paychecks. Wall Street may do the same.

The jobs market is in good shape. But you wouldn’t know that from what’s going on in Silicon Valley. Software giant (and Dow component) It was announced Wednesday that it was laying off 10% of its workforce.

The hope was that consumers and businesses would continue to spend heavily on tech products and services, a notion that seemed valid as the economy quickly rebounded from a brief recession in 2020.

Tech companies are starting to notice that inflation and rate hikes may have not been accounted for in their budgeting plans, as recession alarm bells are sounding once more.

“As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing,” said Salesforce chair and co-CEO Marc Benioff in a recent note to employees.

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

The World Economy is Still Going Away: CNN’s Anna Cooban Reminisces on European Consumer Perturbations and Implications for the Future

The global economy is still very much in trouble. 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.

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 retreat.

Consumers continue to be hit hard by higher prices. British shoppers felt the pinch of inflation, and so they went to the German discount grocery chain, prompting it to have its best December ever in the United Kingdom. Aldi said Brits bought more than 48 million mince pies, for example.

Editor’s Note: Steven Kamin is a senior fellow at the American Enterprise Institute (AEI), where he studies international macroeconomic and financial issues. He worked for the Federal Reserve as a director of the international finance division. The opinions are of his own. View more opinion on CNN.

Fed Chairman Lael Brainard: The Job isn’t Close, and the Fed is Too Tight to Cut Its Role in the Labor Market

As the economy slows in response to the rise in interest rates and labor markets tighten, there will be less price pressure on goods and services.

Workers did not receive compensation for increases in productivity. According to Fed Vice Chair Lael Brainard, the labor share of income has dropped over the past two years and appears to be below pre-pandemic levels, while corporate profits are near postwar highs. This suggests that wages could rise more quickly than prices if workers regain their share of corporate income. But that should not force firms into additional price increases, and therefore shouldn’t impede the Fed’s ability to reduce inflation, since firms should be able to absorb those wage hikes by reducing profit margins rather than increasing prices.

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

Powell warned economy watchers that the job isn’t finished and that the labor market is too tight for his liking. It would be premature to think that we have this, he said, adding that unless the economy changes dramatically, he does not expect to cut rates this year.

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.”

Do the Fed and the Economy Over-Correlate? A Valentine’s Day: Inflation in the S&P 500, Core Prices, and the Jobs Report

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 with a small gain, after having its best January in four years.

The Fed says core prices were 4.4% higher than a year ago in December. The annual rate was 5.2% in September.

Two weeks ago, the governor of the Fed said that they don’t want to be head-faked. “Back in 2021, we saw three consecutive months of relatively low readings of core inflation before it exploded in our face.”

“We’re pulling off something really nice right now,” says Sojourner, who served as a senior economist for the Council of Economic Advisers in both the Obama and Trump administrations. “If the we get to the place where the Fed over-corrects, then we start to see jobs destroyed. Hopefully we can avoid that.

This may be the bestvalentine’s day ever, if your heart goes throb when the central bankers talk about inflation. Four members of the Federal Reserve (although not Fed Chair Jerome Powell) spoke on the economy today.

The Federal Open Market Committee sets the interest-rate this year, but Thomas Barkin isn’t a voting member. Barkin stated in an interview that there is more persistence to inflation than perhaps we would like, and that inflation is coming down slowly.

The problem is trying to predict future economic data. She said it’s difficult to have confidence in any outlook when the jobs report comes in with hundreds of thousands more jobs than anyone expected.

New York Fed President Patrick Harker & FOMC: Predictions for the Labor Department and Job Openings, Hirings and Quittings

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

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 jobless rate is currently 3.4%.

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.

The PAMELA Conference Summary: Economic Perspectives on the Future of the US Economy and a Possible Implications for Wall Street and Wall Street Investments

“We’re stuck in the messy middle.” said Josh Hirt, senior US economist at Vanguard. “Activity has weakened in the most interest rate-sensitive sectors of the economy, but core areas are still showing resilience. The economy is in an in-between period where the impact on rates has not been fully worked on.

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

Tuesday: Federal Reserve Chair Jerome Powell is expected to testify on economic outlook and monetary policy before the Joint Economic Committee; earnings from Dick’s Sporting Goods, Caseys General Stores, Squarespace, and Dole.

A preview of the report shows that the Fed chair plans to reiterate that more needs to be done to bring down annual inflation to the Fed’s target of 2%.

The president’s budget is typically used as a guideline for Congress to help shape spending priorities for the year ahead. Wall Street investors will likely pour over the document in order to understand what market-shifting debates may be coming down the pipeline.

Increasing taxes on the ultra-rich will help offset the rising costs of medicare, social security, and health care according to Biden. The president had a tax proposal last year. Increased tax on capital gains and on corporate stock swaps have caused a stir on Wall Street.

Inflation, Wall Street Pax, and the State of the Fed: Some Reactions from Wall Street and Main Street Pedestrians

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 that the responses ranged from fearing that the economy will go into recession to believing they will not be enough to get the job done.

Strong economic data, along with high inflation levels in goods, housing and other sectors, has led her to question the current state of disinflation.

Bostic believes that the Fed needs to raise its policy rate by half a percentage point at its next meeting.

The Fed governor warned on Thursday that interest rates could go higher than expected due to recent economic data.