Economic Outlook - September 2022
- Federal Reserve policymakers met in Jackson Hole at the Kansas City Federal Reserve’s annual conference. Chairman Jerome Powell reiterated the Fed’s commitment to reducing inflation. During his short 8 minute speech, Powell stressed that the Fed’s top priority is taming inflation. The Fed will continue its course of tightening monetary policy, even if doing so increases the risk of a recession.
- The Fed is expected to raise the federal funds rate an additional 75bps to a range of 3.0% to 3.25% at the September Board meeting, as inflation pressures remain. Higher interest rates will help to tame inflation but will slow economic growth. The Fed is trying to balance its dual mandate of stable prices and full employment. We expect the higher interest rates will slow the economy but will not induce a full-on recession with high unemployment.
- August nonfarm payrolls increased by 315,000 and are now above pre-pandemic levels. The unemployment rate rose to 3.5% from 3.3%, driven by 786,000 workers entering the workforce to look for jobs. Professional services, health care and retail saw the strongest hiring. Wages grew 0.3%, down from an increase of 0.5% in the prior month, showing signs of relief to employers who have had to increase wages to entice workers. The labor market remains resilient and more workers available to fill jobs should relieve pressure on employers.
- The ISM Manufacturing Index held steady at 52.8, beating estimates and indicating an expansion in the overall economy. A number above 50 indicates expansion. ISM’s forward-looking new orders rebounded to 51.3 after two months below 50.
- Core PCE, the Federal Reserve’s preferred inflation metric rose 0.1% in July on a monthly basis and 4.5% over the past year. This is a slow-down from a 0.6% increase in June and below economist’s expectations. Core PCE excludes food and energy prices, which are volatile and often driven by factors outside of the central bank’s control. Lower core inflation and energy costs were offset by higher food and housing/rent costs. Higher interest rates have slowed new housing starts but house prices remain elevated as the market remains tight.
Sources: Factset, WSJ, US BEA, US BLS, Federal Reserve, Institute for Supply Mgmt., Yardeni Research
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