Inflation, wages, and consumer prices: Some insights from a multivariate analysis of a possible impact on wage growth and labor shortages
But there’s another concern. Wages, while still rising, are not actually keeping pace with the increase in consumer prices. You don’t need to be a math genius to realize that 5.2% is less than 6.2%.
Inflation is not caused by the price of oil or manufacturing costs, but by many other things. How much workers take home in their paychecks is also a big part of the inflation picture.
When people have more money in their wallets (virtual or good old-fashioned leather ones), they tend to be more willing to spend it. It gives companies flexibility to raise prices.
Wage growth is historically high, but it doesn’t happen very often. Before the H1N1 hit, wages rose just 3% each year. But labor shortages, due to Covid-19 and people dropping out of the workforce, shifted power from employers to employees when it came to worker pay.
Source: https://www.cnn.com/2022/10/02/investing/stocks-week-ahead/index.html
The Fed has ruled out inflation: Personal consumption expenditures are expected to grow 5.5% this year in the U.S. by 2022/2022
The government reported Friday that its preferred inflation metric, personal consumption expenditures (PCE), rose 6.2% from a year ago in August. That was lower than July’s reading.
What’s more, the Fed typically is looking for just a 2% growth rate in the headline PCE number as a sign of price stability. It won’t happen anytime soon. According to the latest forecasts by the Fed, PCE will grow 5.5% this year, up from its June prediction of 5.2%.
Retail sales have held up relatively well despite inflation pressures, but Norton warns that can’t last forever. American shoppers eventually reach their breaking point, and begin buying essentials. Slower economic growth will inevitably lead to lower prices.
Source: https://www.cnn.com/2022/10/02/investing/stocks-week-ahead/index.html
The Third Quarter of Stock Markets: Where Do We Stand? Where Are We Going? How Do Investors Look During the Fourth and Fourth Quarters
The third quarter is mercifully over. It’s been another doozy for the market. September in particular was bleak. It was the worst month for the Dow since the start of the pandemic in March 2020.
There are some positive signs for the next several months, despite the fact that bonds, gold and bitcoin have all fallen this year as well.
The fourth quarter is typically a festive time on Wall Street. Investors tend to buy stocks in anticipation of robust consumer shopping during the holidays. Businesses spend more money just to get their yearly budgets in order. And major companies also often give rosy guidance in October about earnings expectations for the coming year.
A dozen bear markets since World War II have ended in October. And of those twelve, seven market bottoms happened during midterm election years.
Traders will definitely be keeping close tabs on Washington this fall to see if Republicans gain control of the House. That could lead to more gridlock in DC, which investors tend to like.
Whether or not Corporate America and investors will be so bullish this October because of inflation and the global economy is up for debate. After all, October is also famous for huge crashes, most recently in 2008 but also in 1987 and, of course, 1929.
“We’re nearer to a bottom,” said Christopher Wolfe, chief investment officer of First Republic Private Wealth Management. A lot of companies are up for sale. It’s a time to be patient and reposition.”
Source: https://www.cnn.com/2022/10/02/investing/stocks-week-ahead/index.html
How Well Do We Know the Federal Reserve Is Doing What It Takes to Prevent Hurricanes? An Empirical Comment from a Floridan Business Woman
Thursday: US weekly jobless claims; earnings from ConAgra
(CAG), Constellation Brands
(STZ), McCormick
(MKC) and Levi Strauss
(LEVI)
Meteorologists tell us that global warming has created new problems for forecasters. It is not easy to issue early warnings for hurricanes because they are intensifying more quickly than in the past. It was too late for many people in Lee County in Florida to evacuate before the storm hit, as officials waited for evidence they would be hit hard.
Is something similar happening with economic policy? I wrote a few weeks ago about what economists and business people are saying, that the Federal Reserve is trying to slow the economy too much in order to fight inflation. The buzz has gone up since then. And I’m increasingly convinced that, despite a disappointing inflation report and what still looks by some measures like a robust job market, the Fed is getting behind the curve.
Higher rates allow supply to catch up and slow the pace of inflation, paving the way for more moderate price increases. But in the process, they slow down hiring, weaken wage growth, prompt job losses and ripple through financial markets in sometimes disruptive ways.
It is not clear how much pain today’s moves will cause, as so many countries are raising rates quickly and so in sync. Monetary policy takes months or years to kick in completely.
The UN agency warned that the damage in poorer nations could be particularly acute, due to the danger of overdoing it. 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 Fed’s moves have spurred market volatility and worries about financial stability, as higher rates elevate the value of the U.S. dollar, making it harder for emerging-market borrowers to pay back their dollar-denominated debt.
Usually, the “Fed” is a sleepy corner of America, known for dull press conferences. When economic sailing is smooth, there’s not much news coming out of the central bank that is of even remote interest to people other than economists or journalists.
But a few weeks ago, I sat next to a woman on an airplane. She described herself as knowing “zero” about the economy and then proceeded to ask me whether I thought the Federal Reserve would continue raising interest rates to help fight inflation.
The truth is that we should all be interested in the Federal Reserve. It is possible that the Fed’s actions in the coming months will help determine the fate of our country because of big shifts in our economy.
Keeping inflation low, and making sure the number of people in America are employed, are two of the Federal Reserve’s main jobs. The dual mandate is what the Fed is known for.
The Fed is mandated to protect both areas as they are considered the most important parts of a strong economy.
“Economic security depends on both jobs and stable prices. Mary Daly, head of the San Francisco Federal Reserve Bank, talked about how the two pillars formed the foundation for everything else in a recent speech.
“If your family is one where you spend most of your paycheck, every paycheck cycle, on gas, food, transportation, clothing, basics of life, and prices go up the way they’ve been going up, you’re in trouble right away,” Powell said. “We’re hearing from people is very much that inflation is really hurting…it would be nice if there were a way to just wish it away but there isn’t.”
John Halpin is a senior fellow at the Center for American Progress, who wrote recently that inflation is a political problem for governments around the world. Why should the United States be different?
Inflation in the United States: Paul Volcker and his family’s budget after the cinnamon roll moment and the impact on economy and government
Smith did a deep dive into his family’s budget after the cinnamon roll moment and realized their spending had increased by 40%. He and his wife were not expecting that. We were happy about it. That is way too much. How did we do that? Where did we go?’”
As it turned out, the Smith family hadn’t done anything differently or gone anywhere unusual, the prices of their normal purchases and activities had just risen and it had added up fast in a family of six. Smith and his family started cutting back on eating out, going to Utah for a summer road trip, and other things.
He said his kids complained that they didn’t do anything this summer. “They were correct and it was mainly because of the cost of gas which has gone up from $150 to $400.”
Demand and prices go down when the Fed raises interest rates because it’s more expensive to borrow money and people will stop buying stuff.
The last time inflation got really high in the U.S. was back in the 1970s and 80s, when it topped 13%. Paul Volcker was the head of the central bank and he was trying to control prices. The current interest rate is 3%, but he pushed interest rates to 20%.
The result: a big economic shock. The economy fell into a terrible recession, unemployment spiked to 11% and people and politicians unleashed all kinds of wrath onto Chair Volcker. Volcker was solely focused on bringing inflation under control. It worked and inflation came down. But it took years of serious economic pain and millions of people lost their jobs.
The US stands out because its economy is very weak and it is suffering from high inflation. The unemployment rate is at a 50-year low. This is something. We saw in this morning’s report – consumer spending and investment spending continued to grow. We have solid household finances, business finances, banks that are well capitalized,” she said.
Actually, he seems to have already made the call… in code. The history of communication by the Fed is that it leaves everybody to desperately try and interpret things, such as tie color choice and body language.
Powell said in the summer that they were taking swift and aggressive steps to keep inflation expectations anchored. We are going to keep on working until we are sure that the job is done. As unexciting as that might seem, for Fed-watchers, this moment was a veritable fireworks spectacular, and code for choosing to fight inflation just like Volcker who battled inflation at the cost of millions of jobs and a recession. Volcker’s book was called ” Keeping at It”.
More recently in a press conference on September 21, Powell made it even clearer that he was willing to tolerate some pain from a slower economy and “softening of labor market,” because inflation was just too harmful for families and needed to be dealt with.
Hopefully the inflation report that’s coming this Thursday will show prices coming down and if unemployment stays low, the dual mandate will never have to duel. My airplane conversations can go back to complaining about legroom and we can all have our cinnamon rolls and afford them, too.
Here’s the thing about elections: When they break, they usually break in one direction. And right now, all the indicators on my political dashboard are blinking red — as in, toward Republicans.
The conditions that helped Democrats gain over the summer are no longer in place, according to the latest New York Times/Siena poll.
Why the Fed and Main Street aren’t Trying to Prevent the Great Recession? Nomi Prins, President, and CEO of the Bell Corporation
Before the Bell Newsletter had a version of this story. Not a subscriber? You can sign up here. You can listen to an audio version of the newsletter by clicking the same link.
It’s safe to say that the global economy is in a pretty bad place right now: The vast majority of economists think we’re on the brink of recession. US markets seem to like it. The week was the best since June and ended with a surge on Monday.
So what gives? A decade of free-flowing money from the Federal Reserve to banks has created two economies, argues Nomi Prins, a former managing director at Goldman Sachs and author of “Permanent Distortion: How the Financial Markets Abandoned the Real Economy Forever.” Wealthy Americans and corporations benefited directly from years of low rates, which kept money flowing into businesses and stocks high while Main Street suffered from decelerating wages and little support. Prins says we are now dealing with a “permanent distortion,” where market behavior and economic prosperity have nothing to do with each other.
What’s happening: The stock market has always been unpredictable. Even though analysts and economists try to estimate market moves, the reality is that it is not always a good idea, since there are strong, educated guesses.
The bulk of this stimulus flowed upwards into markets and not outward into the economy at large and created a world where investors became dependent on the Fed while the larger economy suffered, said Prins.
When the Federal Reserve raised rates earlier this year they publicly explained how important their credibility was to successfully lowering inflation rates. Americans need to believe the central bank will work hard to bring prices down if it succeeds, they said.
But investors don’t believe it, says Prins. When the Fed says it isn’t, they seem to think a policy pivot is coming even when it isn’t. They realize that the Fed will return to its policy of aiding markets eventually.
Meanwhile, she says, it’s Main Street, not Wall Street, that’s feeling the brunt of these interest rate hikes, through increased mortgage and borrowing rates and a slowing jobs market.
According to the report, more than half of the respondents believed that there was more than 50% chance of a recession within the next year, and almost one in ten thought the nation was already in one.
Shortages of raw materials and labor continue to hinder businesses’ operations, according to the survey. The share of respondents reporting shortages was close to a record.
Source: https://www.cnn.com/2022/10/25/investing/premarket-stocks-trading/index.html
The State of the UK’s Economy: Rishi Sunak’s Last Attempt and the Challenges It Takes to Shepherd Its Own Families
Rishi Sunak, Britain’s third prime minister in seven weeks, will face the huge challenge of projecting stability after a period of historic political and financial market chaos. But his other task — shepherding the country through a recession — is poised to be just as daunting, reports my colleague Julia Horowitz.
Sunak promised to help households tackle rising cost of living when he was running for the job this summer, but many are pulling back on spending because they cannot afford it. He promised to cut taxes, but only once price pressures subsided.
The economic outlook has deteriorated significantly since then due to the market turmoil caused by the now- abandoned plan to slash taxes as soon as possible.
After market close, they report the third-quarter earnings for Microsoft, Visa, and other companies.
Plus: The Conference Board is expected to release October Consumer Confidence which measures the level of confidence consumers have in the economy at 10 a.m. ET.
There are growing concerns about a recession at some point in the next year, but as a result of the latest data it was clear that a path to a soft landing was open.
But Yellen agreed with the President’s assessment that the economy remains strong, standing out in comparison to how other economies around the world are fairing.
The Bureau of Economic Analysis estimated the gross domestic product rose at an average annual rate of 2.6% during the third quarter. In the first and second quarters of the year, the decline was 1.6% and 0.6%.
The Avatars of the Recession: The Case for Private Investment and the Growth of the American Economy During a Pre-Cold-19 Era
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 has had difficulty making use of what they view as a robust record. Biden, asked about the economy last week, told reporters it’s “strong as hell,” drawing criticism from Republicans.
Yellen pledged that those efforts would be felt as they course through the economy in the months and years ahead. When asked if the general message was one of patience, she said yes.
“There were several problems that we could have had, and difficulties many families American families could have faced,” Yellen said. These problems are not present because of what the Biden administration has done. So, often one doesn’t get credit for problems that don’t exist.”
As part of the administration’s effort to highlight major legislative wins, Yellen traveled to Cleveland to highlight the billions of dollars in private sector investment that the policies have led to.
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.
In listing off a number of major private sector investments, which include the Intel plant that was opened a few hours drive away from Columbus, she said they would take time to fully take effect.
Not in every community but fairly soon, repaired bridges are going to come online. Many bridges in the area will be fixed, and roads will be improved. Money flowing into research and development is an important source of long-term strength for the American economy. The strength of America will increase and we will become more competitive, she said.
Source: https://www.cnn.com/2022/10/27/politics/janet-yellen-gdp-recession-cnntv/index.html
What does she think about raising the debt ceiling? Yellen’s comments on the Washington crisis that Congress has promised to avoid using credit rating leverage
Yellen talked about 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.
The President and I agree that Congress should not use the credit rating of the US as a bargaining chip in the debt ceiling negotiations and that the US will not be held hostage by countries that think it is okay to default on their debt.
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.”
“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 would like to be a part of that.