The Fed’s Decision to Increase Interest Rates: An Empirical Analysis of the U.S. Economy and the Challenge of Inflation
A second reason the Fed should be slowing its rate hikes is that the actual level of the interest rates needed to slow inflation is unknown. 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 can take a long time to kick in.
Many economists warn that there is a danger or overdoing it, including the United Nations that warned that 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.
The Feds moves caused market volatility and worried about financial stability as the value of the U.S. dollar increased.
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 continued to be high.
Economists have predicted that the economy will slow and inflation will moderate in the months ahead. They have been expecting a cooling down since the beginning of last year, and the data has proved them wrong many times. The Fed plans to raise interest rates at a point where it will be difficult to expand the economy, and hold them at a high rate until they see a moderation in inflation. Officials have estimated that they will lift borrowing costs to about 4.6 percent by the end of 2023.
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.”
The third quarter GDP data showed the strength of the US economy, as policy makers move to cool off pervasive and soaring inflation that has had a sharp effect on Americans, according to an interview with Janet Yellen that aired on CNN.
The Bureau of Economic Analysis released first estimates of the Gross Domestic Product for the third quarter on Thursday. The first and second quarters of this year were negative with a decline of 1.6% and 0.6% respectively.
The Recovery of America from Covid-19 During the 2008-2009 Recession: State of the Art, the Innovation, and Innovation in the U.S.
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.
The administration was able to take advantage of what they viewed as a strong record because of the reality that it is. Biden, asked about the economy last week, told reporters it’s “strong as hell,” drawing criticism from Republicans.
The efforts to pull the US economy out of a crisis haven’t gotten the credit they think they deserve, says the head of the Federal Reserve.
There were difficulties that many families could have faced, and that’s what we could have had. “These are problems we don’t have, because of what the Biden administration has done. So, often one doesn’t get credit for problems that don’t exist.”
Yellen traveled to Cleveland as part of an administration push to highlight the major legislative wins – and the tens of billions of dollars in private sector investment those policies have driven toward manufacturing around the country.
It’s a critical piece of an economic strategy designed to address many of the vulnerabilities and failings laid bare as Covid-19 ravaged the world, with significant federal investments in infrastructure and shoring up – or creating from scratch – key pieces of critical supply chains.
Listing off a series of major private sector investments, including the $20 billion Intel plant opened a few hours drive outside of Columbus, Yellen said they were “real tangible investments happening now,” even as she acknowledged they would take time to full take effect.
“But you’re beginning to see repaired bridges come online – not in every community, but pretty soon. Bridges that have been falling apart are going to be repaired in many communities. The American economy benefits from research and development, which is an important source of long term strength. And America’s strength is going to increase and we’re going to become a more competitive economy,” she said.
Source: https://www.cnn.com/2022/10/27/politics/janet-yellen-gdp-recession-cnntv/index.html
The Debt Ceiling and The Fed: What Do We Want to Fix? Commentary on the Yellen White House Addressing the Debt Crisis
Yellen also addressed the battle lines that have been drawn this week over raising the debt ceiling, a now-perpetual Washington crisis of its own making that House Republicans have once again pledged to utilize for leverage should they take the majority.
In the midst of highlighting thedestructive nature of showdowns, it was revealed that she would support doing away with the debt limit entirely through legislation. A group of House Democrats wrote a letter to the Democratic leaders in the congress to request that action, but Biden didn’t accept the idea this week.
As the administration moves toward a time period that traditionally leads top officials to leave an administration, she made clear she did not plan to be one of them. Asked about reports she had informed the White House she wanted to stay into next year, Yellen said it was “an accurate read.”
The program that was talked about was something that I was excited about. “And I see in it great strengthening of economic growth and addressing climate change and strengthening American households. I want to be a part of that.
The central bank increased the interest rate by a quarter percentage point on Wednesday for the eighth time in less than a year.
“Interest rates have risen at a whiplash-inducing speed, and we’re not done yet,” said Greg McBride, chief financial analyst at Bankrate. “Inflation will take some time to come down from the lofty levels we are in, even once we start to see some improvement.”
What is happening? The consumer price index was up a less than expected 7 percent for the year ending in October and it was the lowest reading since January.
Esther George is the president of the Federal Reserve Bank of Kansas City and she said there is still a bit of a savings buffer for households. “That suggests we may have to keep at this for a while.”
George is a member of the rate-setting committee of the Fed, and like her colleagues she wants to control inflation. But she’s also cautioned against raising rates too rapidly at a time of economic uncertainty.
George said he has been in the camp of steadier and slower rate increases to start to see how they will affect the economy. My concern was that a succession of super-sized rate hikes may cause you to oversteer and not be able to see those turning points.
Elizabeth Warren and colleagues wrote a letter to the Fed chairman on Monday, saying they were deeply concerned about the interest rate hikes that risked slowing the economy to a crawl.
The Great Recession: When Mortgage Rates Go Up, Homes Have Stopped, Home Buyers Are Frustrated: The Case of the Kansas City Home Builder Shawn Woods
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.
We’re in for a rough six or eight months, that’s what I think. “Typically, housing leads us into downturns and it leads us out of downturns. We’ve probably been in a housing recession since April, I think from a housing perspective.
The narrative got flipped on it’s head in 2020. There was a reason that they couldn’t afford homes in the suburbs. The furor was driven by people in their 30s who had been slogging away at whatever jobs were left for them when the Great Recession hit and they were eager to flee.
Baby Boomers with large investments were happy to pass on some of their stock gains to their kids.
Those who closed on a home in the crush of competition caused by lower-than-normal mortgage rates should be very lucky.
For a historical comparison, the share of first-time buyers over the past decade has been between 30% and 40%. 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 while mortgage rates were going up.
Home prices shot up when mortgage rates went up and the median went to $413,800 in June. Imagine your starter home costing at least 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 within existing neighborhoods, housing supply has expanded through “sprawling 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.
It is a good time for the federal and local governments to rethink how they 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. As Schuetz argues, the upper-middle class Boomers in power now are, understandably, reluctant to change the system that got them where they are.
The Fed is Not Over-tightened, but it is Just Beginning to Get Closer to the Recession: A CNN Business Before the Bell Analysis
In its seven meetings starting in March, the central bank’s policymaking arm raised its benchmark interest rate by a cumulative 4.25 percentage points. The sharp hike in rates has started to filter through the economy, its effects showing up first in areas such as real estate, where mortgage rates were 6.27% this week, more than double the rate seen last year at this time, according to Freddie Mac data.
Minneapolis Federal Reserve President Neel Kashkari said last Wednesday that he’s “open to the possibility” of a larger interest rate increase in the Fed’s March policy meeting, “whether it’s 25 or 50 basis points.” (That’s a quarter or half of a percent. One hundredth of one percent is the basis point.
Wall Street will also need to dive even deeper into Friday’s jobs report to get a better sense of what’s happening in the economy. The unemployment rate is expected to remain at 3.7%, close to a half-century low.
The US economy is expected to have gained 200,000 jobs last month, which will be down from the 263,000 it created in September but still above the previous year’s average. The unemployment rate is expected to edge up slightly, to 3.6% from 3.5% — still close to a half-century low.
“This latent strength in the job market could be the reason that the Fed over-tightens,” he told CNN. “The rest of the economy, to us, is very clearly signaling slowdown, imminent recession. And when you see the Fed revising their unemployment projections up, revising their GDP growth number down, it seems that they agree.”
Bad news, but the first mile of a marathon matters. It could mean that a soft landing, where inflation doesn’t go up and unemployment doesn’t go up, isn’t out of the question. That is also good for markets.
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. The new CNN poll shows that a majority of likely voters think the country is in a recession.
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Is that not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
Bitcoin Prices Over the Covid-Era After High-Current Borrowing Rates and a Declining Thermonuclear Rate
Stocks surged on Thursday in their best day since 2020 after a key inflation indicator came in softer than expected. Investors broke out their party hats as they interpreted the report to mean that peak inflation may finally 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. They will be watching Powell’s conferences for clues about what’s to come.
The economy and stock price will be less affected if the Fed does not have to tighten as aggressively, wrote Bill Adams in a note.
The conspirators believed rising interest and inflation would make investors migrate away from the dollar to other alternatives. They were in for a rude awakening this year, says Paul R. La Monica.
It is no longer possible to hide in a market where worries over rate hikes and a recession are top of mind.
a thaw with tyrannical 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.
After central banks started raising rates to combat inflation, the dollar strengthened and attracted investors as the ultimate 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.
Just look at bitcoin prices since the summer of 2020. 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.
Freddie Mac’s Real Estate News: The Producer Price Index is Up 7.4% through November, and it’s the Lowest Annual Inflation Rate in Nearly a Year
Sam Khater is Freddie Mac’s chief economist, and he says that the housing market is sensitive to interest rates. Home sales have been falling and will not improve as we approach year-end.
People are betting on a half point increase. The Federal funds futures are showing an 80% probability of a half-point hike.
It might not be that simple. The government reported Friday that a key measure of wholesale prices, the Producer Price Index, rose 7.4% over the past 12 months through November. That was a bit higher than the expected rate of 7.2% but a marked slowdown from the 8% increase through October.
Consumer prices soared by 7.1% year-over-year in November. That is high at almost any other point in the past 40 years. But this marked the fifth-straight month of improvement and a significant cooldown from 9.1% in June. It’s also the lowest annual inflation rate in nearly a year.
The idea of peak inflation, which many people have been talking about for most of the year, is starting to look legit according to Thomas Martin. How fast does that come down?
How will the US economy get a little more money? The Monetary Policy Report on Dec. 1 to Dec. 2 at 4:30pm ET ET/MST
Powell will give his semiannual Monetary Policy Report to Congress and then open himself to questions from lawmakers. The Feds current rate raising regimen is unpopular with a few lawmakers and they are expected to go back and forth about it.
“A pivot or pause is not a cure-all for this market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services. It may be too late for rate cuts. Recession risks are still relatively high.”
The US economy isn’t in a recession yet. Is there a reason for American shoppers to be tapped out? We’ll get a better sense of that Thursday after the government reports retail sales figures for November.
Consumers might have gotten a head start on their 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.
Everyone has been talking about inflation this year. In the future, it will be about disinflation, according to the CEO of Comgest Global Investors.
Wall Street Stability: What does the Fed want to tell investors about epochs of growth and inflation? A keynote speech by Sam Bankman-Fried
What is it that means for investors? Cosserat said people should be looking for quality consumer companies that still have pricing power and can maintain their profit margins. He said his firm owns two stocks, one luxury goods maker and the other a cosmetics giant.
Friday: EurozonePMI, UK retail sales and earnings from several companies.
In October andNovember, the stock market appreciated due to investors hoping that the Fed would be less aggressive with 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. That was the highest the 10-year has been since 2008.
With the Fed considering tightening, the macroeconomic focus will shift to how badly growth is slowing and earnings are falling before central banks can hint at providing assistance, according to the Sevens Report investing newsletter.
FTX founder Sam Bankman-Fried will testify before the House Financial Services Committee on Tuesday. The Senate Banking Committee will hold its own FTX hearing, but Bankman-Fried is not on the list of witnesses.
Fed’s Rate Increases are Predictive of the Second Quarter Quarter Volatility and the Growth of the United States, China, and Taiwan
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.
Federal Reserve Chairman Jerome Powell confirmed last month that smaller rate hikes could be expected, saying: “The time for moderating the pace of rate increases may come as soon as the December meeting.”
The economy has held up well against the Fed’s rate hikes. Americans are spending more money and the job market is healthy. Companies are reporting better than expected earnings and revenue.
The European Central Bank is expected to follow the United States in making a half-point move on Thursday. The borrowing costs of Norway, Mexico, Taiwan, and the Philippines will increase this week.
The hike is smaller than the first four increases and comes after the government showed that inflation is at its lowest rate in almost a year.
There is more work that needs to be done according to the speaker. In order to put this inflation episode behind us, further policy tightening will likely be necessary.
The Fed Reaffirmed: Consumer Prices and the Implications of a Hyperaccelerator from the Precession to the Second World War
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.
“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 announcement of another increase caused the stock market to fall and the Fed warned there are more hikes to come. The major indices were mostly flat by the end of the day.
To be sure, much of this decline reflects falling energy prices. But even the so-called “core” inflation rate, which excludes volatile energy and food prices and thus provides a more reliable reading on price trends, has also moved down a bit in recent months, to 5.7% year-over-year in December.
Fed officials think the worst of shelter inflation may be behind us. Increases in market rents have slowed since spring.
While prices have come down, the price of living is still going up faster than it was before the epidemic. At 7.1%, the November inflation rate is well above the Federal Reserve’s 2% target. In February 2020, the rate of inflation was more than three times what it was in February of that same year. 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.
Powell said goods prices are coming down. “We understand what will happen with housing services. The rest of it is the big story and not much has changed there. It’s going to take some time.
Powell thinks that the job market is out of balance, with more job openings than available workers. 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 restore balance by tamping down demand.
Prices are still climbing much faster than Americans were used to before the pandemic, even though there are signs that the Federal Reserve’s dramatic steps to slow down inflation may finally be working.
The central bank has made it clear it will do whatever it takes to bring inflation down, and on Wednesday raised interest rates for the seventh time in nine months.
The November Power of the Fed: Consumer Prices Have Dropped in the Last Three Year, and Services Have Enhanced Anomalous Dollars
Prices for gasoline have plummeted and are now lower than they were before Russia invaded Ukraine. The prices of other goods like used cars and televisions have fallen, as pandemic kinks in the supply chain come untangled. The price of flights and rental cars have dropped as travelers become less price conscious, because the demand for travel has waned after the recent lockdowns.
“I don’t think anyone knows whether we’re going to have a recession or not and if we do, whether it’s going to be a deep one or not,” he said on Wednesday.
The price of groceries and gas could go up or down depending on the weather and the war in Ukraine. 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. That depends on the number of jobs added each month, the number of workers who are able to fill them, and the productivity of workers when they’re employed.
The Federal Reserve preferred inflation measurement showed that prices went up at a slower rate in November, giving a further indication that the high prices have ended.
The Commerce Department reported that the PCE increased in November from a year earlier. That’s lower than in October, when prices rose 6.1% annually.
The PCE inflation index’s increases have been at their lowest levels in more than three years and the Consumer Price Index and producer price index have also fallen.
Spending was up in November but at a much slower rate than it had been in previous months. In November spending was up by a small amount compared to the previous month. Personal income increased by 0.4% in November, down from 0.7% in October.
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.
While much of the services inflation is due to housing costs, which are rapidly reversing, the Fed is concerned that strong wage growth could fuel persistent increases in services prices and overall inflation, he added.
The November Manufacturing and Economic Activity Statistics of the United States Preliminary Data Released by the Commerce Department: Heavily Uncertainty about the Fed, the Economy and the Outlook for 2023
A separate Commerce Department report released Friday showed that new orders for manufactured goods tumbled 2.1% in November, the biggest monthly drop since the onset of the pandemic.
New orders for non-defense aircraft and parts drove the decline according to the report. Excluding transportation, new orders increase 0.2%.
“Core durable goods orders slowed but did not contract, reflecting growing unease about the economy,” Diane Swonk, chief economist for KPMG, tweeted Friday after the report’s release. “Manufacturing activity has begun to contract and prelim reading for December suggests it will contract further at year end. A cold winter expected for the manufacturing sector.
The final December reading for the index of consumer sentiment came in at 59.7 in December, up slightly from a preliminary measurement of 59.1 and November’s final reading of 56.8, according to data from the university’s Surveys of Consumers.
The recent easing of inflation was welcomed by consumers, according to the director of the Surveys of Consumers. Consumers have not decided yet if the trends will continue or not, as sentiment appears to have turned a corner from its all-time low.
She said the outlook for the economy may have improved but is still relatively weak. The sustainability of robust consumer spending is contingent on continued strength in incomes and labor markets in the quarters ahead.”
Earlier this week, the Conference Board’s consumer confidence index – another measure of how consumers are feeling about the economy – landed at its highest measurement since April 2022.
America’s central bank found itself in a glaring spotlight for much of this past year, as Federal Reserve Chairman Jerome Powell wielded blunt tools of interest rate hikes and quantitative tightening to curb surging inflation.
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.
Powell said in December that a structural labor shortage is one of the major factors in slowing the economy.
Employers are hesitant to lay people off, and other areas of the economy are strong enough that those who are unemployed are able to get rehired quickly.
“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’s not a recession.”
“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.
Summary of Economic Projections for the 2023 U.S. Open Market Committee Meeting & Report of the 2008-2009 Stock Market Breakdown
The Federal Open Market Committee has eight regularly scheduled meetings each year. Over the course of two days, the 12-member group looks through economic data, assesses financial conditions and evaluates monetary policy actions that are announced to the public following the conclusion of its meeting on the second day, along with a press conference led by Chair Powell.
The meetings for 2023 are listed below. Thedot plot, a chart showing where interest rates are likely to land in the future, is what the meeting with a Summary of Economic Projections includes.
It was a brutal period for the stock market, with roughly one-fifth of the value of the S&P 500 vanishing and the Nasdaq dropping by more than one-third. All three major US markets suffered their worst years — by far — since 2008.
New numbers show the number of first-time applications for unemployment benefits increased. 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, it’s unlikely consumers will stop spending and the economy suffer a downturn.”
The Implications of Inflationary Data on Wall Street, Jobless Claims, and Wage Growth for Traders and Wall Street
After spiking above $5 a gallon for the first time ever in June, gas prices have plunged. The national average for regular gasoline recently dropped to $3.10 a gallon, an 18-month low, though it has crept higher in recent days to about $3.22 a gallon.
But that trend has begun to reverse, at least when measured on a monthly basis. Real wages have been growing faster than consumer prices, a significant shift that could give consumers firepower to keep spending next year.
The Fed can keep raising rates too long and cause a recession, if it hasn’t already done so.
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.
As of late, traders are interested in economic reports even more than usual, and the stock market has been volatile based on recent figures on inflation.
Wednesday’s weaker than expected report on the health of the manufacturing sector, coupled with more signs of strength in the jobs market given the solid report about labor turnover, 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. More alarm bells could be rung about inflation and Fed rate hikes.
The level of wage growth will also be under scrutiny. More inflation can be caused by an increase in worker compensation. Consumers can afford to pay the higher prices that companies charge for their products and services if they have more disposable income.
Average hourly earnings rose only 4.7% in the previous 12 months, but investors were happy to see that. But year-over-year wage growth perked back up to 5.1% in November. Wage increases are predicted to be 5% in December, a bit lower than in the past.
Lauren said that the mismatch between labor supply and demand continues to put upward pressure on wages.
In other words, the Fed is likely to focus more on worker paychecks in Friday’s jobs report than the number of jobs added. Wall Street could do the same thing.
Salesforce, Amazon, and the Price of Energy: Is the Global Economy still in the Woods? An Investor Perspective from a Times of Recession
As my colleague Catherine Thorbecke reported, Salesforce joins a growing list of major tech firms that have recently announced job cuts, including Amazon
(AMZN) and Facebook owner Meta Platforms. More than 18,000 employees were laid off by Amazon.
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.
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.
“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. They’re not in heavy people expansion mode every year,” Amazon CEO Andy Jassy said in a memo shared with employees.
The global economy is not out of the woods. Many, including the head of the International Monetary Fund, are 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. The price of energy is falling.
Source: https://www.cnn.com/2023/01/05/investing/premarket-stocks-trading/index.html
Fed Rate Cuts Revived: The Impact of Prices on UK Consumer Product Prices, Shares of Corporate Income, and Wall-String Production
The British Retail Consortium said in a report Wednesday that food prices surged 13.3% in December. Meanwhile, data analytics firm Kantar noted in another report that UK grocery sales hit a record during the four weeks ending on December 25, even though the number of items that consumers bought fell 1% during the same period.
Steven Kamin is a senior Fellow at the American Enterprise Institute, where he studies international macroeconomic and financial issues. He worked as a director at the international finance division of the Federal Reserve. The opinions are of his own. View more opinion on CNN.
Price pressures are likely to continue to ease as remaining supply-side bottlenecks are resolved, the economy slows in response to the rise in interest rates, and labor markets tighten as a result.
In other words, workers have received no compensation for increases in productivity. The consequence, as acknowledged by Fed Vice Chair Lael Brainard, is that “the labor share of income has declined over the past two years and appears to be at or below pre-pandemic levels, while corporate profits as a share of GDP remain near postwar highs.” Wages may rise quicker than prices if workers regain their share of corporate income. Firms should be able to absorb wage hikes by cutting profit margins, since the Fed should be able to keep inflation in check by not 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.
Still, Powell warned economy watchers that “the job is not fully done” and that the labor market remains 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.
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.”
Inflation, the Fed’s Preferred Gauge, and the State of the Economy: The Good, the Bad, the Ugly
US markets jumped following the press conference, indicating the investors expect a more dovish Fed going forward. The S&P 500 went up on the first day of the new year after having a stellar January.
Excluding food and energy costs the Fed’s preferred inflation gauge was 4.4% higher than it was a year ago. That’s down from the rate of 5.2% in September.
Chris was quoted two weeks ago as saying that the Fed do not want to be head-faked. We saw a few months of relatively low core inflation readings in the year 2021, before it shot out of control.
“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.”
If the central bankers discuss inflation, this may be the best Valentine’s Day ever. 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 with the TV station Tuesday that inflation is normalizing but it is coming down slowly, adding that there is more persistence to inflation than maybe we would all want.
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.
Phenomenology of the Fed and Wall Street: a dovish prediction for the next few days and a warning from Hell Week
Patrick Harker sounded a little more dovish in that he was less concerned about inflation. He is a member of the governing body. Harker said in a speech Tuesday that rates are likely close to being done, but that they are “not done yet”. Harker believes that at some point this year, the policy rate will be restrictive enough that they will hold rates in place.
John Williams is a member of the Federal Open Market Committee and his name has been thrown around as a potential successor to Lael Brainard as Fed vice chair if Biden decides to pick Brainard as his 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.
The February private payroll report and the January job openings, hires and quits reports are expected on Wednesday. The February job cuts numbers from Challenger, Gray and Christmas will be released on Thursday, while the Labor Department will release the employment report on Friday.
The Ubiquitous: Surveying the Hirt Effect and Expectations for the 2020 Joint Economic Committee Report on the Biden-Biden Budget
Josh Hirt said we’re stuck in the middle. “Activity has weakened in the most interest rate-sensitive sectors of the economy, but core areas are still showing resilience. We are in this in-between period where the impact of rates has not fully worked through the economy.”
The unemployment rate will likely go up from its current 54-year low, albeit slowly, to 5% by the end of the year, according to Hirt.
The Joint Economic Committee is expected to hear testimony from the Federal Reserve Chair on monetary policy and economic outlook.
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 may pour over the document to understand what market- changing debates are coming down the pike.
Biden has said his budget will help offset increasing costs for Medicare, Social Security and health care by increasing taxes on the ultra-wealthy. The president made a proposal for a billionaire tax last year. Other Biden proposals, like increased tax on capital gains and on corporate stock buybacks, have roiled Wall Street.
Why Fed Policy is So Hard? A Comment on Main Street and Wall Street Panic: From High Inflation to The Era of Growth, a Conversation with David Bostic
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 the responses ranged from fearing that the actions will tip the economy into a recession to believing that they won’t be enough to get the job done.
She believes that high inflation levels in goods, housing, and other sectors along with strong economic data has lead her to wonder if there is a movement of disinflation.
Bostic believes the Fed needs to raise its policy rate by half a percentage point at the next meeting.
The governor of the Federal Reserve warned on Thursday that pained interest rates could go higher than expected.