Fed Meets This Week as Signs Point to an Easing of Inflation
That means the central bank will stay the course with its aggressive tightening of monetary policy. But there are signs that its anti- inflation stance – reversing years of cheap and easy money – is having an effect, and so the focus on Wednesday when Chairman Jerome Powell holds a press conference will be on what the Fed does next.Suggestions that the Fed might take a pause, or lower the amount it raises rates in December, has led the stock market to post impressive gains in recent days, capped off by an 828-point gain for the Dow Jones Industrial Average on Friday .
“Ultimately, we feel the Fed will likely begin to reduce the size of increases and then pause to assess their cumulative effect, but we expect the narrative will remain “higher for longer” rather than than entertaining any kind of ‘pivot’ language,” David Norris, partner and head of U.S credit at TwentyFour Asset Management, wrote on Friday .Already, some sectors of the economy are flashing yellow, if not red. Housing has been hit particularly hard, with pending home sales down 10.2% in September and 31% year over year. Rents, meanwhile, fell 0.8% nationally last month, according to data from apartment rental firm Zumper.“Yes the rental market is cooling rapidly, even seasonally adjusted,” Julia Coronado, president and founder of MacroPolicy Perspectives, tweeted on Saturday. “Even a return to pre-pandemic rates of housing inflation would subtract at least a percent off core inflation – a huge step in the right direction, and this is happening WITHOUT A RECESSION, what is happening?”And while rents and house prices take a while to show up in the monthly consumer price index, the Fed will be well aware of the shifting landscape in the rental housing market, where an abundance of new construction is coming to market at a time the economy is slowing.Bunker says that private sector wages grew at an annual rate of 4.8% in the third quarter, down from 6.5% in the prior quarter. The number of available positions open for hiring fell by more than 1 million last month.While the spotlight will be on the Fed this week, it is also “jobs week” for economic data with the job openings number for October released on Tuesday, followed on Wednesday by private payroll firm ADP’s monthly jobs survey and then on Friday the monthly nonfarm payrolls report from the Labor Department.Much of the economy’s immediate future will rest on the shoulders of the American consumer, responsible for nearly 70% of economic activity. So far, the consumer has proven resilient even in the face of inflation running at an 8.2% annual clip. But a cushion of savings built up during the coronavirus pandemic, credit cards and higher wages have helped consumers manage.“Real disposable income – income after taxes and adjusted for price changes – was unchanged in September,” Lydia Boussour, senior economist at EY Parthenon, wrote on Friday . “As consumers feel the squeeze from elevated inflation , they are increasingly relying on their savings to sustain their spending. The personal savings rate fell from 3.4% to 3.1% last month – the lowest rate since April 2008.’’“ Higher interest rates and the unwind of the Fed ’s asset purchases have slammed the brakes on the housing market, and cooled the rest of the economy as well,” Adams added. “With the overall economy continuing to decelerate, that slowdown in inflation will most likely continue into 2023. If so, the Fed will likely conclude its rate hikes in early 2023.”
Suggestions that the Fed might take a pause, or lower the amount it raises rates in December, has led the stock market to post impressive gains in recent days, capped off by an 828-point gain for the Dow Jones Industrial Average on Friday. “Even a return to pre-pandemic rates of housing inflation would subtract at least a percent off core inflation – a huge step in the right direction, and this is happening WITHOUT A RECESSION, what is happening?”
But a cushion of savings built up during the coronavirus pandemic, credit cards and higher wages have helped consumers manage.
“Real disposable income – income after taxes and adjusted for price changes – was unchanged in September,” Lydia Boussour, senior economist at EY Parthenon, wrote on Friday. “As consumers feel the squeeze from elevated inflation, they are increasingly relying on their savings to sustain their spending. The personal savings rate fell from 3.4% to 3.1% last month – the lowest rate since April 2008.’’
“Higher interest rates and the unwind of the Fed’s asset purchases have slammed the brakes on the housing market, and cooled the rest of the economy as well,” Adams added. “With the overall economy continuing to decelerate, that slowdown in inflation will most likely continue into 2023.
