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The global economy is weakening and consumers are feeling financially stressed. Gas and heating prices have risen significantly from a year ago and Federal Reserve Chairman Jerome Powell indicated on Wednesday that painfully high interest rates will persist for some time.
It’s tough there, but there’s a silver lining: persistently high inflation is showing signs of easing. To finish.
What is happening: The personal consumer expenditure price index, the Fed’s preferred gauge of inflation, rose 6% in October from a year earlier, the Commerce Department reported Thursday. This is down from 6.3% in September.
“This morning’s data was a Goldilocks report,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, wrote in a note Thursday. “If inflation continues to fall, markets will continue to rise as investors conclude that the Fed won’t need to raise rates as high, or keep them high for as long, as previously predicted.”
Inventories of most products are higher, with the notable exception of automobiles, and companies are pushing discounts. Gasoline prices also fell between October and November, which means that inflation could continue to slow.
This is very good news for investors. In a speech at the Brookings Institution in Washington on Wednesday, Powell said the Fed could slow the pace of its aggressive rate hikes as early as December.
Good news on house prices: The Fed’s spirit should also be lifted by a key change: annual rent inflation is starting to ease in the US, rising just 0.4% in October. This is the smallest monthly increase since February. It also backs key data that shows the housing market may finally be changing.
The Case-Shiller U.S. National Home Price Index reported this week that price growth fell from August to September from 12.9% to 10.6%. Morgan Stanley also cut its outlook for U.S. home prices.
Powell struck an optimistic tone this week. “As long as new lease inflation continues to fall, we expect housing service inflation to start falling next year,” he said. This matters because housing plays an outsized role in most inflation measures. “Indeed, a decline in this inflation underlies most forecasts of lower inflation,” he said.
And after: The consumer price index is due on Dec. 13, just a day before the Fed makes its next policy move. It’s the “significant report of the year,” Zaccarelli said. This “could confirm the downward trend in inflation”. But if inflation surprises on the upside “then all bets are off and we could see a sell-off through the end of the year – especially if the Fed decides to hike by the end of the year. year”. [three-quarters of a percentage point] the next day, instead of [half-point] that everyone relies on. »
Investors are eagerly awaiting today’s jobs report, the last before the Fed’s next meeting, for clues about the future of interest rate policy and the economy.
Economists expect the report to confirm the recent trend of a slowing but still strong labor market.
Despite a series of deep cuts — mostly to tech companies and other businesses that have grown during the pandemic — and fears it will be the calm before the storm, the broader labor market has barely budged, reports my colleague Alicia Wallace.
Weekly jobless claims have been a bit bumpy but remain at levels seen in good economic times. And employees laid off by big companies seem to be finding jobs quickly, said Robert Frick, a business economist at Navy Federal Credit Union.
The ratio of job vacancies to job seekers is falling ever so slightly — and in the right direction for the Federal Reserve, which hopes weaker labor demand will help contain inflation which has been hitting highs for decades.
“The relative softness of high-wage occupations may comfort the Fed, but wage growth is holding up for low- and middle-income workers whose industries are still facing historic labor shortages,” the analysts wrote. analysts from Vanguard’s Economists and Investment Strategy Group in a note. Thursday.
This persistent labor supply shortfall seen throughout 2021 is unlikely to fully reverse anytime soon, Fed Chairman Jerome Powell said in a Q&A on Wednesday. responses at an economic forum.
The labor market “shows only tentative signs of rebalancing, and wage growth remains well above levels that would be consistent with 2% inflation over time,” he said. “Despite some promising developments, we still have a long way to go to restore price stability.”
Prices at the pump continue to plunge, sending the US gasoline average falling below what it was when Russia invaded Ukraine, reports my colleague Matt Egan.
A gallon of regular gas now costs $3.47 nationally, according to AAA. This is below the average of $3.54 on February 24, the day Russia invaded Ukraine.
A range of factors have led to lower gasoline prices – and not all of them are positive. Fears of a potential recession and worries about Covid lockdowns in China hurt energy prices.
Other factors include fewer disruptions to oil flows from Russia than expected and the Biden administration’s record release of oil from emergency reserves.
The bottom line: Gasoline prices are still relatively high for this time of year, but looking ahead, some forecasters see gasoline prices continuing to decline. This could make its way into next month’s inflation reports and lift a significant weight off the shoulders of the Federal Reserve.
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