Inflationary Measurements from the Fed and Implications for the United States and Other Regions in the Light of the September 1929 Fed Data Release
“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.
Annual inflation in September was 6.2%, according to the Fed’s preferred yardstick — unchanged from the month before. Prices are up at an annual rate of 8.2%, which is stronger than the known consumer price index.
It is more costly to get a car loan or buy a house because of higher borrowing costs. That’s already curbing demand in some of the more sensitive parts of the economy, like the housing market.
There are so many countries raising rates so quickly and so in sync that it is difficult to say how much pain they are going to cause. It takes months or years for monetary policy to kick in.
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.
It is a recipe for globe-spanning turmoil and even recession. Despite that, the Fed is poised to continue raising interest rates. That’s because the Fed, like central banks around the world, is in charge of domestic economy goals: It’s supposed to keep inflation slow and steady while fostering maximum employment. The Fed is called the central bank to the world because it is the foremost cheerleader of the US dollar, but it goes about its business just as it always has.
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. But he also acknowledged that inflation remained painfully high.
Fed Rates Aren’t Going to Fail: Will Rate Increases Prevent the Emergence of a Low-Lying Dollar?
The Federal Reserve is expected to raise interest rates by half a point at the conclusion of its two-day policy meeting on Wednesday, which is an indication that the central bank is pulling back on its aggressive stance as signs begin to emerge that inflation may be easing.
The Fed is expected to raise its rates by a larger amount on Wednesday, as doubts arise over how much higher the cost of borrowing will have to go.
“Interest rates have risen quickly and we are not done yet,” said Greg McBride, chief financial analyst at Bankrate. It’s going to take some time for inflation to come down from these high levels even once we start to see some improvement.”
“We see today that there is a bit of a savings buffer still sitting for households, that may allow them to continue to spend in a way that keeps demand strong,” said Esther George, president of the Federal Reserve Bank of Kansas City. That suggests that we might have to stay here for a while.
In an interview that aired on CBS on Sunday, Treasury Secretary Janet Yellen — Powell’s predecessor at the Fed — said there is “a risk of a recession. But it certainly isn’t, in my view, something that is necessary to bring inflation down.”
“I have been in the camp of steadier and slower [rate increases], to begin to see how those effects from a lag will unfold,” George said last month. I worry that a succession of very large rate hikes may cause you to over steering and not be able to see the 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.
The Fed’s Latest Boom in the Labor Market: Home Builder Shawn Woods and the JOLTS Labor Statistics Survey of the U.S.
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.
Woods believes we will be in for a rough six or eight months. “Typically, 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.”
When the Bureau of Labor Statistics releases its October jobs report on Friday, it will be the last major read of the economy before the midterm elections — and it 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 last month, down from 263,000 in September but well above the pre-pandemic average. The unemployment rate is expected to go up slightly, to 3.6% from 3.5%.
Take the latest monthly JOLTS survey to find out about job vacancies, quits and layoffs. Tuesday’s report surprised economists, who had predicted that the number of job vacancies in the United States would fall amid measures by the Federal Reserve to slow business growth in order to tame inflation. But instead of dropping to 10 million, it surged to 10.7 million.
All of this shows that 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.
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).
“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 there will be a next US recession by the year 2023.
The pain of inflation is outweighing any positive sentiment about jobs for the Democrats trying to retain power next week. According to a new CNN poll, three-quarters of likely voters think the country is in a recession.
More bad news for the Millennial and Gen Zers looking to buy their first home: What will they tell us about the next 50 years?
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.)
As that 2020 housing boom begins to go bust, those who managed to close on a home in the crush of competition fed by rock-bottom mortgage rates should count themselves extremely lucky.
Over the last decade, the share of first-time buyers has ranged from 30% to 40%. In the middle of the Great Recession, it was up to 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. “And this year were facing increasing home prices while mortgage rates are also climbing.”
In addition to mortgage rates going up, home prices also went up, with the median peaking at $413,800 in June. (Imagine your starter home clocking in at 400 grand!)
“The policies that regulate land use and housing production make it extremely difficult to add more homes in desirable locations,” writes Jenny Schuetz, an urban economist at the Brookings Institution.
Rather than rebuilding in the existing neighborhoods, housing supply has expanded through subdivisions at the urban fringe. That is putting homes and people in areas that are vulnerable to fire.
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 those who benefit, then that will happen. Schuetz thinks the Boomers in power are unwilling to change the system that got them where they are.
The UK Central Bank Rate Increase and the Implications for Investing in the U.S. Consumer Price Index and the Coeconomy
The Bank of England lifted its key interest rate by the same amount as the Fed on Thursday, making it the biggest rate hike in 33 years. Last week the European Central Bank did the same thing.
(Side note: “Basis points” are how central bankers talk about rate moves, which usually happen in tiny increments. One percentage point is one basis point.
It is double the Fed’s normal quarter-point hike, and will most likely cause economic pain for millions of Americans by pushing up the cost of borrowing for homes, cars and other loans.
There is a half-point increase that traders are betting on. An 80% chance of a half point hike is shown in federal funds futures.
But it may not be that simple. The producer price index has risen over the past year, the government reported Friday. 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 is released Tuesday, just a day before the Fed announcement. CPI rose 7.7% year-over-year through October.
Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research said inflation may not come down as quickly as people want it to.
The Summary of Economic Projections is due out on Wednesday and will be read by investors. And they will watch Powell’s press conferences for clues about what’s to come — though they may end up sorely disappointed.
“A pivot or pause is not a cure-all for this market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. “Rate cuts may be too late. The risks of a recession are still high.
Economists are actually forecasting a small dip of 0.1% in retail sales from October. It is important to point out that number in a positive way. Retail sales increased by 8.3% over the past year.
So it’s possible consumers were simply getting a head start on holiday shopping. Retail sales have been impacted by inflation, because people have to spend more money for stuff.
“Everybody has been talking about inflation this year. Going forward, it will be more about disinflation in 2023 or 2024,” said Arnaud Cosserat, CEO of Comgest Global Investors.
What Does It Mean For Investors? Cosserat’s Stocks, Retail Sales, and Other Aspects of the November Fed Rate Resummation
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. Two stocks that his firm owns that he said fit that bill: Luxury goods maker Hermes
(HESAF) and cosmetics giant L’Oreal
(LRLCF).
Friday includes the EurozonePMI, retail sales in the UK, earnings from several companies, and much more.
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.
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. The 10-year was the highest it had been in a while.
“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.
The CNN Business Fear & Greed index, which tracks seven indicators of market sentiment and has been in Greed mode for the past month, is now in neutral territory, but it pales compared to what is happening withbitcoin and other cryptocurrencies.
Bitcoin prices fell more than 15% in November and have plummeted about 65% this year. The remarkable collapse of crypto brokerage and exchange firm FTX, which was once valued as high as $32 billion, has investors in digital currencies wondering what the future will bring.
FTX founder Sam Bankman-Fried: What can investors learn from the House Finance Committee’s hearing on Oct. 23rd?
Investors may get some answers this week when FTX founder Sam Bankman-Fried testifies in front of the House Financial Services Committee on Tuesday. Bankman-Fried isn’t on the list for the Senate Banking Committee’s FTX hearing.
Maybe investors will relax before the Fed’s announcement and press conference later that day. Although there is no guarantee of that.
Powell said that he wouldn’t see rate cuts until the committee was confident in moving inflation down to 2%.
The economy has so far weathered the Feds rate hikes. 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 European Central Bank, the Bank of England and the Swiss National Bank are expected to follow the United States with half-point moves of their own on Thursday. The borrowing costs of Norway, Mexico and Taiwan are going to increase this week.
Inflation After a Four-Decade High of 9% in June, the Price of Goods Has Remaining (But Not Too) Low
After hitting a four-decade high of 9% in June, annual inflation dipped to 7.1% last month, according to the government’s latest scorecard. That’s the smallest annual price increase in 11 months.
“Let’s not forget we have a long ways to go to get back to price stability, but it is good to see progress”, Powell said at the press conference after the board decided to raise the rate by a smaller amount.
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. Currently, used car buyers are charged an average interest rate of 9.34%, compared to 8.12% last year, and they’re making the largest monthly payments on record, according to credit reporting firm Experian.
The stock market fell after the announcement of another increase, mostly as Wall Street digested the Fed’s warning that there are more rate hikes to come. The major indices were barely changed by mid-afternoon.
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.
Rents continue to climb, but Fed officials believe the worst of shelter inflation may be behind us. Increases in market rents have slowed since spring.
The overall cost of living is still rising faster than it was before the epidemic, and some prices have come down. At 7.1%, the November inflation rate is well above the Federal Reserve’s 2% target. It’s also more than three times the rate of inflation in February 2020 – before COVID-19 led to the economy shutting down. The rising cost of services such as haircuts and restaurant meals is particularly worrisome since it’s mostly driven by labor costs and they tend to be more volatile than food and energy prices.
Powell said that they saw goods prices coming down. We are aware of what will happen with housing. 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.
Many older workers who retired in the last two years may not return to the job market. The Fed is trying to restore balance because there is a shortage of workers.
Despite signs that the Federal Reserve’s efforts to control inflation may finally be working, prices are still climbing much faster than Americans used to.
The central bank has said that it will do everything it can to bring inflation down and on wednesday it raised interest rates for a seventh time.
The Effect of the Cold War on Gas and Oil Markets in the U.S. and in Ukraine on Travel and Energy Costs: How Cold is the Universe?
The price of gasoline dropped dramatically after Russia’s invasion of Ukraine. The prices of used cars and other goods have fallen as the supply chain is untangled. The prices for things such as airplane tickets and rental cars have fallen as travelers become more price-conscious.
He said there wasn’t a clue as to whether we’re 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. A faster or slower economy around the world can cause a downturn in the price of crude oil and other commodities.
What happens to wages affects the price of services. That depends in turn on how many jobs the country adds each month, how many workers are available to fill those jobs, and how productive workers are when they’re employed.