Tag Archives: the fed

What to expect from the jobs report


Minneapolis
CNN
 — 

The latest monthly jobs report, set to be released at 8:30 a.m. ET, is expected to show that the US economy added 200,000 jobs in December, with the unemployment rate holding steady for the third-straight month at 3.7%.

The Labor Department’s final monthly employment tally for 2022 likely brings with it some familiar story lines.

— Job growth is expected to remain robust, although slower than the breakneck pace of historically high job gains during the early stages of economic recovery from the pandemic.

— Workers are still not returning to hard-hit sectors such as leisure and hospitality, public service and child care.

— The strong labor market, while it keeps the economy churning, is a little too consistently vigorous for the Federal Reserve’s needs to reduce inflation by tempering demand.

— The tight labor market needs more workers, and wage growth still hasn’t returned to pre-pandemic levels, which would help quell fears of a wage-price spiral, when higher wages cause price increases that in turn cause higher wages.

Lather, rinse and repeat.

“The preponderance of evidence suggests that the labor market is still nowhere near back to normal,” said Julia Pollak, senior economist with ZipRecruiter online employment marketplace.

The US labor market remains atypically tight — something that was reinforced Wednesday when the Bureau of Labor Statistics released its Job Openings and Labor Turnover Survey (JOLTS) report for November. It showed there were still north of 10.5 million job openings, or about 1.7 available positions for every unemployed person looking for work.

The survey also showed that what has been deemed the “Great Resignation” is still chugging along, Pollak said. During the Covid-19 pandemic, a record number of workers voluntarily quit their jobs in search of greener pastures — be it better working conditions, higher pay, or increased flexibility.

The number of people per month quitting their jobs has now landed above 4 million for 18 months straight. In the two decades leading up to the pandemic, the monthly average was 2.6 million.

“Companies are still battling huge retention difficulties,” Pollak said.

The latest JOLTS didn’t show that the market was loosening up as maybe some had hoped or expected. But it did provide a window into some of the divergence that’s occurring at a time when some businesses are hiring more to meet consumer demand while others scale down their operations because of bloat, the rippling effects of high interest rates, or preparation for less fruitful economic times ahead.

Industries such as accommodation and food services reported about 50% fewer layoffs in November than what was seen on average between 2000 and February 2020, Pollak said.

“I think it’s mostly just pre-pandemic recovery,” she said. “Leisure and hospitality is still short hundreds of thousands of workers and just still ramping up, because spending recovered more quickly than staffing.”

As of October 2022, the leisure and hospitality sector was still below pre-pandemic employment levels by more than 1 million jobs, or 6.3%, according to a CNN Business analysis of BLS employment data.

Technology companies have accounted for the lion’s share of job cuts announced in recent months. During the pandemic, when people were relegated to working and spending their money from home, tech and e-commerce firms bulked up to meet the demand.

During 2022, technology was the leading job-cutting industry, with 97,171 reductions announced, according to Challenger, Gray & Christmas’ latest job cut announcement report released Thursday.

Overall, job cuts trended upward in 2022 at 363,824 as compared to 321,970 the year before. There were 43,651 job cuts announced in December, a 129% jump from December 2021, according to the report.

But the job cuts announced in 2022 were the second-lowest on record, going back to 1993, Challenger, Gray & Christmas data showed. In 2019, there were 592,556 job cuts announced.

“The overall economy is still creating jobs, though employers appear to be actively planning for a downturn,” Andrew Challenger, senior vice president of Challenger, Gray & Christmas, said in the report.

If the monthly job gains come in as expected on Friday, that would mean the economy added more than 4.5 million jobs in 2022.

That would be the second-highest annual total on record, behind the massive 6.7 million gains in 2021, which of itself was a pendulum swing from a record 9.2 million job losses in 2020, BLS data shows.

“The Federal Reserve would like to see a [monthly job growth] number closer to 100,000 or below that,” said Nick Bunker, economic research director for North America at the Indeed Hiring Lab. “That’s more in line with a clearly cooling labor market.”

Economists are also expecting average hourly earnings growth to slow on a monthly and year-over-year basis, to 0.4% and 5%, respectively, according to Refinitiv.

Wage gains, although outpaced by inflation, remain well above pre-pandemic averages and beyond what the Fed wants to see in its price-busting campaign. Chair Jerome Powell, while acknowledging that the wage increases did not cause inflation to spike to the highest levels in 40 years, has repeatedly noted that persistent wage growth in such a tight labor market could keep inflation levels elevated.

“This is a set of labor market data that for workers and job seekers, [continued, strong nominal wage growth] it’s very much positive news,” Bunker said. “But for central bankers, they see this as a problem.”

Inflation has started to come down in recent months, with key gauges showing declines. But for the Fed to reach its desired target of 2% inflation, the labor market will have to take a hit, with unemployment rising to about 4.6% this year, according to the central bank’s projections released in December.

“The fact that inflation appears to be cooling down without the labor market taking a significant hit is a sign that a lot of this very high inflation was not driven by the labor market and that it is possible for inflation to be coming down from these levels without the labor market taking a hit,” Bunker said.

“But it’s unclear how far inflation can fall without the labor market deteriorating, or rather, it’s not clear what the underlying pace of inflation is with the labor market this tight.”

—CNN’s Matt Egan contributed to this report.

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Alan Greenspan says US recession is likely


New York
CNN
 — 

Former Federal Reserve Chairman Alan Greenspan believes a US recession is the “most likely outcome” of the Fed’s aggressive rate hike regime meant to curb inflation. He joins a growing chorus of economists predicting imminent economic downturn.

His views are particularly important. Not only did Greenspan serve five terms as Fed chair under four different presidents between 1987 and 2006, but he was the last chair to successfully navigate a soft landing, in 1994. In the 12 months that followed February 1994 Greenspan nearly doubled interest rates to 6% and managed to keep the economy steady, avoiding recession.

Greenspan, now 96, said in a note this week that he doubts this current bout of hikes will result in a repeat performance.

The last two months of data showed that prices are beginning to decelerate – good news but not good enough, he said. “I don’t think it will warrant a Fed reversal that is substantial enough to avoid at least a mild recession,” said Greenspan, now a senior economic adviser to Advisors Capital Management, in commentary released on the company’s website Tuesday.

The Fed hiked interest rates seven times last year, increasing the rate that banks charge each other for overnight borrowing to a range of 4.25%-4.5%, the highest since 2007. Fed officials still expect to raise rates by another percentage point, according to projections released during their December monetary policy meeting.

Wage increases and, by extension, employment, “still need to soften further for a pullback in inflation to be anything more than transitory,” said Greenspan. “So we may have a brief period of calm on the inflation front, but I think it will be too little too late.” Unemployment rates remain near historic lows, holding at 3.7% in November. New employment data is set to be released Friday morning.

Greenspan doubts the Fed will loosen interest rates soon because “inflation could flare up again and we would be back at square one,” he said. “Furthermore, this could potentially damage the Federal Reserve’s credibility as a purveyor of stable prices, especially if the action were seen to be taken merely to protect the stock market rather than in response to truly unstable financial conditions.”

He does see some good news for investors on the horizon. Markets won’t be nearly as chaotic in 2023 as they were last year, he said. “I believe 2022 would be a tough year to top with respect to market volatility,” he remarked.

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PCE, the Fed’s preferred inflation gauge, shows prices cooling


Minneapolis
CNN
 — 

The trend is clear: Inflation is cooling off in America.

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.

In November alone, prices rose just 0.1% from October.

Core PCE, which excludes the volatile food and energy categories, was up 4.7% annually and 0.2% on a monthly basis, matching expectations of economists polled by Refinitiv.

The annual increases for both PCE inflation indexes hit their lowest levels since October 2021 and follows continued declines in other inflation gauges, such as the Consumer Price Index and Producer Price Index.

PCE, specifically the core measurement, is the Fed’s favored inflation gauge, since it provides a more complete picture of costs for consumers.

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. 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.

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.

“The economy is moving in the right direction from the Federal Reserve’s perspective at the end of 2022, but not quickly enough,” Gus Faucher, chief economist for PNC Financial Services, said in a statement. “Higher interest rates are weighing on consumer spending, particularly for durable goods, and inflation is slowing.”

Inflation has moderated in recent months, especially on items like goods as supply chain bottlenecks have eased and consumers focused more spending in areas like leisure and hospitality.

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 Federal Open Market Committee will continue to increase the fed funds rate in early 2023 until it becomes more apparent that the job market is cooling, and wage growth and services inflation are slowing to more sustainable paces,” he added.

The Fed’s latest economic projections that were released last week showed that board members were expecting inflation to remain slightly higher for longer than previously forecast. Fed board members now expect PCE inflation to end 2023 at 3.1% and core PCE to finish next year at 3.5%, above the central bank’s target rate of 2%.

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.

Transportation equipment, specifically new orders for non-defense aircraft and parts, drove the decline, according to the report. Excluding transportation, new orders increase 0.2%.

Shipments increased 0.2% in November, which followed a 0.4% increase in October.

“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.

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.

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.

“Consumers clearly welcomed the recent easing of inflation,” Joanne Hsu, director of the Surveys of Consumers, said in a statement. “While sentiment appears to have turned a corner from its all-time low from June, consumers have reserved judgment about whether the trends will continue.”

She added: “Their outlook for the economy may have improved, but it remains relatively weak. The sustainability of robust consumer spending is contingent on continued strength in incomes and labor markets in the quarters ahead.”

The report showed the biggest improvement in sentiment about business conditions, while inflation expectations also improved by falling to 4.4% in December, the lowest reading in 18 months, according to the university. This is a key data point for the Federal Reserve. If consumers believe prices will remain high, that could factor into increased wage demands, which could cause businesses to raise prices.

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.



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What to do about the highest interest rate in 15 years

Editor’s Note: This is an updated version of a story that originally ran on November 2, 2022.

In its last policymaking meeting of the year, the Federal Reserve on Wednesday raised its benchmark interest rate for the seventh time in a row, to a range of 4.25% to 4.5%. That is the highest it’s been in 15 years.

In a continued bid to tame decades-high inflation, the central bank may keep pushing rates higher next year, too, albeit at a more modest pace.

That, of course, means higher borrowing costs for consumers. But it also means your savings may actually start earning a little money after years of barely-there interest.

“Credit card rates are at a record high and still increasing. Auto loan rates are at an 11-year high. Home equity lines of credit are at a 15-year high. And online savings account and CD yields haven’t been this high since 2008,” said Greg McBride, chief financial analyst at Bankrate.

The good news: There are ways to situate your money so that you can benefit from rising rates and protect yourself from their costs.

If you’ve been stashing cash at big banks that have been paying next to nothing in interest for savings accounts and certificates of deposit, don’t expect that to change much, McBride said.

Thanks to the big players’ paltry rates, the national average savings rate is still just 0.19%, up from 0.06% in January, according to Bankrate’s December 7 weekly survey of large institutions.

But all those Fed rates hikes are starting to have a much more significant impact at online banks and credit unions, McBride said. They’re offering far higher rates — with some topping 3.75% currently — and have been increasing them as benchmark rates go higher.

As for certificates of deposit, there’s been a noticeable increase in return. The average rate on a one-year CD is 1.20% as of November 22, up from 0.14% at the start of the year. But top-yielding one-year CDs now offer as much as 4.5%.

So shop around. If you make a switch to an online bank or credit union, however, be sure to only choose those that are federally insured.

Given today’s high rates of inflation, Series I savings bonds may be attractive because they’re designed to preserve the buying power of your money. They’re currently paying 6.89%.

But that rate will only be in effect for six months and only if you buy an I Bond by the end of April 2023, after which the rate is scheduled to adjust. If inflation falls, the rate on the I Bond will fall, too.

There are some limitations: You can only invest $10,000 a year. You can’t redeem it in the first year. And if you cash out between years two and five, you will forfeit the previous three months of interest.

“In other words, I Bonds are not a replacement for your savings account,” McBride said.

Nevertheless, they preserve the buying power of your $10,000 if you don’t need to touch it for at least five years, and that’s not nothing. They also may be of particular benefit to people planning to retire in the next 5 to 10 years since they will serve as a safe annual investment they can tap if needed in their first few years of retirement.

When the overnight bank lending rate — also known as the fed funds rate — goes up, various lending rates that banks offer their customers tend to follow.

So you can expect to see a hike in your credit card rates within a few statements.

The average credit card rate hit a record high of 19.40% as of December 7, up from 16.3% at the start of the year, according to Bankrate. Some retail store credit cards are now carrying whopping rates of more than 30%.

“[Interest rate hikes] will most acutely impact those consumers who do not pay off their credit card balances in full through higher minimum monthly payments,” said Michele Raneri, vice president of US research and consulting at TransUnion.

Best advice: If you’re carrying balances on your credit cards — which typically have high variable interest rates — consider transferring them to a zero-rate balance transfer card that locks in a zero rate for between 12 and 21 months.

“That insulates you from [future] rate hikes, and it gives you a clear runway to pay off your debt once and for all,” McBride said. “Less debt and more savings will enable you to better weather rising interest rates, and is especially valuable if the economy sours.”

Just be sure to find out what, if any, fees you will have to pay (e.g., a balance transfer fee or annual fee), and what the penalties will be if you make a late payment or miss a payment during the zero-rate period. The best strategy is always to pay off as much of your existing balance as possible — on time every month — before the zero-rate period ends. Otherwise, any remaining balance will be subject to a new interest rate that could be higher than you had before if rates continue to rise.

If you don’t transfer to a zero-rate balance card, another option might be to get a relatively low fixed-rate personal loan. Average personal loan rates range from 10.3% to 12.5% for those with excellent credit scores, according to Bankrate. The best rate you can get would depend on your income, credit score and debt-to-income ratio. Bankrate’s advice: To get the best deal, ask a few lenders for quotes before filling out a loan application.

Mortgage rates have been rising over the past year, jumping more than three percentage points.

The 30-year fixed-rate mortgage averaged 6.33% in the week ending December 9, according to Freddie Mac. That is more than double where it stood a year ago.

“After cresting above 7%, mortgage rates have pulled back a bit but not enough to impact buyer affordability. The year-to-date rise in mortgage rates has still stripped would-be homebuyers of one-third of their buying power,” McBride said.

What’s more, mortgage rates may climb further.

So if you’re close to buying a home or refinancing one, lock in the lowest fixed rate available to you as soon as possible.

That said, “don’t jump into a large purchase that isn’t right for you just because interest rates might go up. Rushing into the purchase of a big-ticket item like a house or car that doesn’t fit in your budget is a recipe for trouble, regardless of what interest rates do in the future,” said Texas-based certified financial planner Lacy Rogers.

If you’re already a homeowner with a variable-rate home equity line of credit, and you used part of it to do a home improvement project, McBride recommends asking your lender if it’s possible to fix the rate on your outstanding balance, effectively creating a fixed-rate home equity loan.

If that’s not possible, consider paying off that balance by taking out a HELOC with another lender at a lower promotional rate, McBride suggested.

Given that inflation may have peaked, market returns may be better next year, said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. “The outlook for equity and fixed income returns has improved, and a balanced approach [in your portfolio] makes sense.”

That’s not to say markets won’t remain choppy in the near term. But, Ma noted, “A soft landing for the economy looks not only possible but likely.”

Any cash you have sitting on the sidelines might be put into the equity and fixed income markets in regular intervals over the next six to 12 months, he suggested.

Ma remains bullish on value stocks, especially small cap ones, which have outperformed this year. “We expect that outperformance to persist going forward on a multi-year basis,” he said.

Regarding real estate, Ma noted, “the sharply higher interest and mortgage rates are challenging…and that headwind could persist for a few more quarters or even longer.”

Commodities, meanwhile, have come down in price. “But they still are a good hedge given the uncertainty in energy markets,” he said.

Broadly speaking, however, Ma suggests making sure your overall portfolio is diversified across equities. The idea is to hedge your bets, since some of those areas will come out ahead, but not all of them will.

That said, if you’re planning to invest in a specific stock, consider the company’s pricing power and how consistent the demand is likely to be for their product, said certified financial planner Doug Flynn, co-founder of Flynn Zito Capital Management.

To the extent you already own bonds, the prices on your bonds will fall in a rising rate environment. But if you’re in the market to buy bonds you can benefit from that trend, especially if you purchase short-term bonds, meaning one to three years. That’s because their prices have fallen more, relative to long-term bonds, and their yields have risen more. Ordinarily, short- and long-term bonds move in tandem.

“There’s a pretty good opportunity in short-term bonds, which are severely dislocated,” Flynn said.

“For those in higher-income tax brackets, a similar opportunity exists in tax-free municipal bonds.”

Muni prices have dropped significantly and, while they have started to improve, yields have risen overall and many states are in better financial shape than they were pre-pandemic, Flynn noted.

Ma also recommends short-term corporate bonds or short-term Agency or Treasury securities.

Other assets that may do well are so-called floating rate instruments from companies that need to raise cash, Flynn said. The floating rate is tied to a short-term benchmark rate, such as the fed funds rate, so it will go up whenever the Fed hikes rates.

But if you’re not a bond expert, you’d be better off investing in a fund that specializes in making the most of a rising rate environment through floating rate instruments and other bond income strategies. Flynn recommends looking for a strategic income or flexible income mutual fund or ETF, which will hold an array of different types of bonds.

“I don’t see a lot of these choices in 401(k)s,” he said. But you can always ask your 401(k) provider to include the option in your employer’s plan.

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Treasury Secretary Yellen predicts major inflation cooldown in 2023


New York
CNN
 — 

Treasury Secretary Janet Yellen is striking a cautiously optimistic tone about 2023, predicting a major inflation cooldown and stressing that a recession isn’t required to get prices back under control.

“I believe by the end of next year you will see much lower inflation, if there’s not an unanticipated shock,” Yellen told CBS’s “60 Minutes” in an interview that aired on Sunday.

Yellen cited plunging gas prices — AAA said Monday the national average is down by 52 cents per gallon in the past month — tumbling shipping costs and shortening delivery lags.

“I hope that it will be short-lived,” Yellen said of the current period of high inflation. “We learned a lot of lessons from the high inflation we experienced in the 1970s. And we’re all aware that it’s critically important that inflation be brought under control and not become endemic to our economy. And we’re making sure that won’t happen.”

Yellen, like many economists and even the Federal Reserve, has previously been overly optimistic about inflation. She admitted earlier this year that she was “wrong” about the path of inflation, telling CNN’s Wolf Blitzer in June that she “didn’t — at the time — fully understand” the “large shocks to the economy” that would come from Russia’s war in Ukraine.

The comments come after Friday’s hotter-than-expected wholesale inflation report, which showed producer prices increased in November at the slowest annual pace in 18 months.

The more closely watched consumer inflation report due out on Tuesday this week is expected to show a similar cooldown of consumer prices.

The Federal Reserve is widely expected to deliver a seventh-straight interest rate hike on Wednesday, though investors are betting the US central bank will slow the pace of rate increases from three-quarters of a point to half a point. The Fed’s aggressive rate hikes have driven up borrowing costs — credit card rates are at record highs — and raised fears of a recession.

Yellen conceded a recession is possible in the months ahead — though the former Fed chair emphasized that one isn’t required to tame inflation.

“There’s a risk of a recession,” Yellen said. “But it certainly isn’t, in my view, something that is necessary to bring inflation down.”

Like other Biden administration officials, Yellen argued the economy is in the midst of a healthy transition from blockbuster growth to something more sustainable.

“We had a very rapid recovery from the pandemic. Economic growth was very high,” Yellen said. “To bring inflation down and because almost anyone who wants a job has a job, growth has to slow.”

Yellen said the US economy is at or near full employment, meaning it’s “not necessary” for rapid growth to get people back to work.

The Treasury secretary said she tries to instill a sense of compassion and urgency into policymaking by stressing to her staff that real people are suffering.

Yellen recalled how in 2009 when millions of people were out of work in the middle of the Great Recession, she reminded her staff at the San Francisco Federal Reserve, where she was president from 2004-2010, that there are real people behind labor market statistics and economists need to worry about their wellbeing.

“I think I said, ‘They’re f***people,’” Yellen said. “I wanted people that worked for me to take seriously the harm and misery that was being experienced by all too many Americans.”

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Key inflation measure shows price pressures cooled off in November, but remain high


New York
CNN
 — 

Another key inflation measure shows price pressures cooled off but remained stubbornly high in November, despite the Federal Reserve’s monthslong efforts to fight inflation through higher interest rates.

The Producer Price Index, which measures prices paid for goods and services by businesses before they reach consumers, rose 7.4% in November compared to a year earlier, the Bureau of Labor Statistics reported Friday. That’s down from the revised 8.1% gain reported for October.

US stocks fell immediately after the report, as economists surveyed by Refinitiv had expected wholesales prices to have risen just 7.2%, annually. The higher-than-expected inflation readings raised concerns about whether the Fed will be able to slow the pace of rate hikes.

But futures for the Fed funds rate still show a strong likelihood of a half-point increase at the central bank’s policymaking meeting next week, rather than the three-quarter point hike instituted at the last four meetings.

The PPI report generally gets less attention that the corresponding Consumer Price Index, which measures prices paid by US consumers for goods and services. But this is a rare month in which the PPI report came out before the CPI report, which is due out Tuesday.

That and the Fed meeting scheduled for Tuesday and Wednesday next week is making this inflation report of particular importance to investors.

“Next Tuesday’s CPI release will be more important than today’s data, but with traders on edge, any indication that prices remain elevated and that inflation is more sticky than currently believed is a negative for markets,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance.

Overall prices rose a seasonally adjusted 0.3% compared to October — the same monthly increase as was reported in both September and October — but were slightly higher than the 0.2% rise forecast by economists.

Stripping out volatile food and energy prices, core PPI rose 6.2% for the year ending in November, down from the revised 6.8% increase the previous month. Economists had forecast only a 5.9% increase.

Core PPI posted a 0.4% increase from October, a far bigger rise than the revised 0.1% month-over-month rise in that previous month, and twice as big as the 0.2% rise forecast by economists.

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Bank of America CEO predicts two years of pain ahead in the housing market


New York
CNN Business
 — 

The CEO of one of the nation’s largest banks is preparing for an economic downturn in 2023. But he’s also hopeful that the likely recession will be brief and “mild.”

Bank of America

(BAC) CEO Brian Moynihan said in an exclusive interview with Poppy Harlow on “CNN This Morning” Tuesday that there is a lot of uncertainty in the global economy due to the potential US freight railroad strike, Russia’s war with Ukraine and Covid shutdowns in China.

So an economic pullback shouldn’t be a major surprise. But Moynihan told Harlow that the worst-case fears for the economy may not materialize — thanks to the continued resilience of American shoppers.

“That was predicted to happen earlier this year. There was going to be a real slowdown,” Moynihan said. “The Fed was going to raise rates and it’s all pushed out largely because of the US consumer.”

Moynihan’s comments about the economy are decidedly more bullish than some of his peers.

JPMorgan Chase

(JPM) CEO Jamie Dimon said earlier this summer that Americans should brace for an economic “hurricane.” And Goldman Sachs

(GS) CEO David Solomon told Harlow in July that there’s a “good chance” the United States has yet to reach peak inflation.

Still, Moynihan is concerned that there could be more tough times ahead for the housing market. Mortgage rates have skyrocketed this year due to the Federal Reserve’s series of aggressive interest rate hikes. That has made it difficult — if not impossible — for many younger Americans to buy a first home.

“This is the toughest thing. You have to slow down the economy. You have to slow down inflation. And the way you do that is raising interest rates,” Moynihan said. “The intended outcome of [the Fed’s] policies doesn’t feel good when you are trying to buy a home.”

Moynihan told Harlow that there could be two years of pain in the housing market before activity returns to normal.

But despite worries about the housing market, Moynihan said he’s still optimistic that the US economy will continue to lead the global recovery, especially given concerns about China’s recent Covid outbreak and the intensifying protests over the country’s strict lockdown policies.

“I think our economy is holding on better than the rest of the world,” he said.

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Key inflation report indicates the Fed’s rate hikes may be starting to cool prices


Minneapolis
CNN Business
 — 

A key measure of inflation, wholesale prices, rose by 8% in October from a year before, according to the latest report from the Bureau of Labor Statistics.

While still historically high, it was the smallest increase since July of last year and significantly better than forecasts. It’s the second inflation report this month to show signs of cooling in the rising prices that have plagued the economy.

Economists expected the Producer Price Index, which measures prices paid for goods and services before they reach consumers, to show an annual increase of 8.3%, down from September’s revised 8.4%.

On a monthly basis, producer prices rose 0.2%, below expectations and even with the revised 0.2% increase seen in September.

Year-over-year, core PPI — which excludes food and energy, components whose pricing is more prone to market volatility — measured 6.7%, down from September’s revised annual increase of 7.1%.

Month-over-month, core PPI prices were flat, the lowest monthly reading since November 2020. In September, core PPI increased by a revised 0.2% from the month before.

Economists had expected annual and monthly core PPI to measure 7.2% and 0.3%, respectively, according to estimates on Refinitiv.

President Joe Biden heralded October’s PPI report Tuesday calling it “more good news for our economy this morning, and more indications that we are starting to see inflation moderate.”

“Today’s news – that prices paid by businesses moderated last month – comes a week after news that prices paid by consumers have also moderated,” Biden wrote Tuesday. “And, today’s report also showed that food inflation slowed – a welcome sign for family’s grocery bills as we head into the holidays.”

For much of this year, the Federal Reserve has sought to tamp down decades-high inflation by tightening monetary policy, including issuing an unprecedented four consecutive rate hikes of 75 basis points, or three-quarters of a percentage point.

The better-than-expected PPI data reflects an economy that has slowed, with supply moving more into balance, said Jeffrey Roach, chief economist for LPL Financial.

Costs associated with transportation and warehousing, for example, declined for the fourth consecutive month, a likely result of the improved global shipping climate, he said. Producer costs for new cars fell the most since May 2017, he added.

“Barring geopolitical or financial crises, inflation should continue its deceleration into 2023,” he said in a statement.

Since PPI captures price changes happening further upstream, the report is considered by some to be a leading indicator for broader inflationary trends and a predictor of what consumers will eventually see at the store level.

“The PPI read certainly adds more fuel to the fire for those who feel we may finally be on a downward inflation trend,” Mike Loewengart, Morgan Stanley’s head of model portfolio construction, said in a statement.

Last week’s Consumer Price Index showed inflation slowed to 7.7% from 8.2% year-over-year for consumer goods, surprising investors and giving Wall Street its biggest boost since 2020.

The CPI data was “reassuring,” Fed vice chair Lael Brainard said on Monday, signaling that the rate hikes appear to be taking hold, and if the economic data continues to show inflation on the decline, then the central bank could scale back the extent of its future rate hikes.

“When you look at the inflation numbers, there’s some evidence that we’ve peaked, but are we coming down quickly?” Steven Ricchiuto, chief economist for Mizuho Americas told CNN Business.

Ricchiuto noted that the October figures are only a couple steps lower than what was seen in September.

“These aren’t the types of things that tell the Fed to stop tightening rates,” he said. However, “they may tell you [that] you don’t need 75 basis points.”

CNN’s DJ Judd and Matt Egan contributed to this report.

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Inflation data shows US prices were still uncomfortably high last month


Minneapolis
CNN Business
 — 

A new batch of inflation data released Friday showed that while prices remained uncomfortably high in September, a slowdown in wage growth indicates some relief may be in sight. That’s an encouraging development for the Federal Reserve, which is battling to bring down the highest inflation in 40 years.

The Personal Consumption Expenditures Index, which measures prices paid by consumers for goods and services, climbed by 0.3% from August to September but remained unchanged at 6.2% for the year, according to the latest report from the Bureau of Economic Analysis.

Core PCE, which strips out volatile food and energy prices and is the Fed’s preferred measure of inflation, climbed by 5.1% on an annual basis, higher than the August rate of 4.9% but below the consensus estimate of 5.2%, per Refinitiv.

From August to September, the core index rose by 0.5%, matching estimates. The prior month’s jump was revised down to 0.5% from 0.6%.

Separately, the Bureau of Labor Statistics released its latest Employment Cost Index, which shows a slowdown in wage and salary growth in quarterly labor costs. The central bank keeps a close eye on the ECI report to monitor the extent to which skyrocketing inflation is boosting wages — and fueling inflation.

The latest numbers come just days before the Fed meets to discuss another rate hike — and as Americans hit the polls to vote in midterm elections.

“These data confirm the Federal Reserve has more work to do to cool demand and reduce inflation and keep policymakers on track to raise the federal funds rate by another 75 basis points at the FOMC meeting next week,” Gregory Daco, senior economist at EY Parthenon, said in a statement.

But some of the underlying metrics that indicate a slowdown is on the horizon could mean that next week’s rate increase — which is expected to be the fourth-consecutive 75 basis-point hike — may be that last one of that size, said Mark Zandi, chief economist for Moody’s Analytics.

“There are a lot of moving parts, a lot of assumptions, but I think the most likely scenario is that we’re at the worst of the inflation, and it should be back close within spitting distance of the Fed’s [2%] target by spring of 2024,” he said.

Consumers have been struggling for months with prices that have remained firmly stuck at levels not seen since the 1980s. Despite a series of jumbo rate hikes from the Fed in its bid to tame inflation, the most recent Consumer Price Index — which measures the cost of everything from eggs to plane tickets — showed that price increases continue to surge and that inflation even spread from goods into the services sector in September.

The latest PCE report showed that Americans continued to spend beyond their means — consumer spending increased 0.6% in September from August and income grew 0.4%, while savings levels fell.

Even accounting for inflation, expenditures outpaced income.

“Monetary policy acts with a lag, but at this early stage, consumers’ spending is more or less unfazed by high inflation and the rate hikes intended to get prices under control,” Wells Fargo economists Tim Quinlan and Shannon Seery said in a note Friday.

Consumers, however, aren’t necessarily bullish about the economy and its future prospects.

The University of Michigan’s consumer sentiment index for October came in at 59.9, according to updated survey data released Friday. That’s only 10 index points above the all-time low reached in June.

“This month, buying conditions for durables surged 23% on the basis of easing prices and supply constraints; however, year-ahead expected business conditions worsened 19%,” said Joanne Hsu, surveys director. “These divergent patterns reflect substantial uncertainty over inflation, policy responses, and developments worldwide, and consumer views are consistent with a recession ahead in the economy.”

Beyond the consumer sector, the broader economic picture is darkening, Daco said.

“Rapidly rising interest rates, persistently high inflation, and elevated global uncertainty are eroding business sentiment and prompting companies to make more cautious hiring and investment decisions.”

And while the housing market is already buckling under the weight of surging mortgage rates, the full economic impact of the Fed’s policy tightening has yet to be felt, he said.

CNN Business’ Tami Luhby contributed to this report.

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Janet Yellen: Treasury secretary says she’s not seeing signs of a recession in the US economy



CNN
 — 

Treasury Secretary Janet Yellen said Thursday in an exclusive interview with CNN that she did not see signs of a recession in the near term as the US economy rebounded from six months of contraction.

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.

“Look, what we’re seeing right now is solid growth this quarter. Growth has obviously slowed following a very rapid recovery from high unemployment,” Yellen said when asked about whether the latest GDP data assuaged any recession concerns. “We’re at a full employment economy. It’s very natural that growth would slow. And it has over the first three quarters of this year, but it continues to be OK. We have a very strong labor market. I don’t see signs of a recession in this economy at this point.”

Yellen’s optimism comes amid growing concern from economists and finance officials that a recession is likely at some point in the next year, but was based in part on elements of the latest data that showed signs a necessary slowdown in key areas of the economy leaves open a pathway to a “soft landing” as the Federal Reserve prepares to continue its rapid pace of rate increases.

Gross domestic product — the broadest measure of economic activity — rose by an annualized rate of 2.6% during the third quarter, according to initial estimates released Thursday by the Bureau of Economic Analysis. That’s a turnaround from a decline of 1.6% in the first quarter of the year and negative 0.6% in the second.

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.

“Inflation is very high – it’s unacceptably high and Americans feel that every day,” Yellen said when asked how the administration squared its view of the US economy with soaring discontent among voters. Yellen acknowledged that the prices would take time to recede, saying the efforts to bring it back down to levels “that people are more accustomed to” will likely cover “the next couple of years.”

It’s a reality that has undercut efforts by the administrationto take advantage of what officials view as a robust record. Biden, asked about the economy last week, told reporters it’s “strong as hell,” drawing criticism from Republicans.

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.

“If you look around the world, there are a lot of economies that are really suffering not only from high inflation but very weak economic performance, and the United States stands out. We have unemployment at a 50-year low. … 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.

She added, “This is not an economy that’s in recession and we continue to do well.”

Yellen also acknowledged frustration inside the administration that the efforts to pull the US economy out of crisis haven’t received the credit officials believe is merited.

“There were several problems that we could have had, and difficulties many families American families could have faced,” Yellen said. “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.

Yellen pledged that those efforts would be felt as they course through the economy in the months and years ahead. Asked if the administration’s general message to Americans was one of patience, Yellen said: “Yes.”

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

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.

“The President and I agree that America should not be held hostage by members of Congress who think it’s alright to compromise the credit rating of the United States and to threaten default on US Treasuries, which are the bedrock of global financial markets,” Yellen said.

But Yellen, who has long highlighted the “destructive” nature of the showdowns, has also backed doing away with the debt limit altogether through legislation. 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.

Asked about the split, Yellen said only that she and Biden agreed that it’s “really up to Congress to raise the debt ceiling.”

“It’s utterly essential that it be done, and I’d like to see it occur in the way that it can occur,” Yellen added.

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. And I want to be part of that.”

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