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Despite the increasingly compelling evidence that core inflation will fall sharply next year, the Fed doubled down on its hawkishness today. We now expect two 25bp hikes from the Fed next year, with the fed funds rate peaking at 4.75% to 5.00% in …
14th December 2022
The Fed strikes back Despite the increasingly compelling evidence that core inflation will fall sharply next year, the Fed simply doubled down on its recent hawkishness. As expected, the Fed issued an identical statement and raised interest rates by a …
Despite some mixed signals in the recent data, we still expect the tentative easing of labour market conditions already seen to push wage growth lower soon, with that slowdown gathering pace as employment growth continues trending lower. The November …
13th December 2022
Stick a fork in it, inflation is done The Fed will still hike its policy rate by 50bp tomorrow and the new projections could show the peak in rates above 5%, but the 0.2% m/m increase in core consumer prices in November provides strong support to our …
Stick a fork in it, inflation is done The Fed will still hike its policy rate by 50bp tomorrow and the new projections could show the peak above 5%, but the 0.2% m/m increase in core consumer prices in November provides strong support to our long-held …
The worsening tripledemic of Covid, influenza and RSV is unlikely to have a significant impact on economic growth, but it could weigh on employment and hours worked over the next few months. Covid case numbers remain relatively low but have been rising …
11th December 2022
Sentiment remains at recessionary levels The small rebound in the University of Michigan index to 59.1 in December, from 56.8, indicates that the slump in gasoline prices and recovery in the stock market is supporting consumer sentiment. But the index …
9th December 2022
Fed could be upstaged by CPI data The Fed is used to holding centre stage, but next Wednesday’s policy announcement could end up being overshadowed by the November CPI data, due for release on Tuesday. If we’re right and core prices increased by another …
Money growth has stagnated as the Fed’s monetary tightening ramps up, and, while bank loan growth remains robust, we expect it to fade in response to the lagged impact of higher rates and tighter credit conditions. (See Chart 1.) To the extent that …
8th December 2022
Pace of tightening to slow with 50bp rate hike Powell to maintain hawkish line; projections may show higher peak in rates But further good news on inflation will prompt a rethink soon The Fed is set to slow the pace of tightening with a 50bp rate hike …
7th December 2022
The better-than-expected 263,000 gain in non-farm payroll employment suggests it’s still the best of times in the labour market but, digging below the surface, there are worrying signs that it could be the worst of times soon. Although non-farm payroll …
6th December 2022
Deficit widens on shift in pharmaceutical trade The trade deficit widened to $78.2bn in October, from $74.1bn, as the weakness in global demand began to weigh on exports, which declined by $1.9bn. At the same time, imports increased by $2.4bn, as a …
Deficit widens on shift in pharmaceutical trade The trade deficit widened to $78.2bn in October, from $74.1bn, as the weakness in global demand began to weigh on exports, which declined by $1.9bn. At the same time, imports increased by 2.4bn, as a further …
Overview – We expect the lagged impact of higher interest rates to push the real economy into a mild recession next year. Although that downturn will be accompanied by only a modest rebound in the unemployment rate, we expect both headline and core …
5th December 2022
Activity still holding up, for now The rebound in the ISM services index to 56.5 in November, from 54.4, leaves it consistent with the recent consumption data in pointing to decent activity growth in the fourth quarter. But we suspect that resilience will …
With weaker growth overseas and the drag from the stronger dollar now pushing exports lower, the resilience of consumption is the only thing keeping the economy from falling into recession. Mixed signals for Q4 GDP Although third-quarter GDP growth was …
2nd December 2022
Resilience in payrolls and wages won’t stop Fed from slowing rate hike pace The resilience of the labour market and the resurgence in wage pressures don’t change our view that core price inflation is going to fall more rapidly than the Fed believes, and …
Strength in employment & wages won’t prevent Fed from slowing rate hike pace The resilience of the labour market and the resurgence in wage pressures don’t change our view that core price inflation is going to fall more rapidly than the Fed believes, and …
Index drops below 50 mark The decline in the ISM manufacturing index to 49.0 in November, the lowest reading since the early stages of the pandemic, from 50.2, leaves it at a level consistent with a stagnation in broader economic growth. The decline in …
1st December 2022
Index slips below the 50 mark The decline in the ISM manufacturing index to 49.0 in November, the lowest reading since the early stages of the pandemic, from 50.2, leaves it at a level consistent with a stagnation in broader economic growth. The decline …
Real consumption boosted by motor vehicle rebound The strong 0.5% m/m increase in real spending in October illustrates that consumers are not buckling under the weight of higher interest rates, at least not yet. That gain follows a 0.3% m/m increase in …
The further falls in job openings and voluntary quits in October indicate that labour market conditions are continuing to ease gradually, which should keep downward pressure on wage growth. The fall in the job openings rate to 6.3% in October left it in …
30th November 2022
As the economy slides into a mild recession in the first half of next year, triggering a rebound in the unemployment rate to almost 5% by end-2023, the resulting slowdown in the growth rates of wages and unit labour costs will play a supporting role in …
Warning lights flashing red despite solid activity data Despite the recent resilience of the hard economic data, the most reliable forward-looking indicators suggest that a recession is unavoidable – our six-month ahead composite model puts the odds at …
28th November 2022
How many is “various”? The minutes of the Fed’s early-November policy meeting suggest that although most officials were in favour of slowing the pace of rate hikes at upcoming meetings, there was no consensus on how high the peak in rates would ultimately …
23rd November 2022
Despite the resilience evident in the latest round of hard data, our recession tracker models suggest the odds of a downturn next year are still rising. Odds of recession rising Our recession tracker indicators all but guarantee the economy will contract …
We estimate that non-farm payroll employment increased by a more modest 175,000 in November, although that should be sufficient to leave the unemployment rate unchanged at 3.7%. Payroll gains slowing only gradually The pace of monthly gains in non-farm …
Equipment investment refusing to roll over despite surging rates The solid 1.0% m/m rise in durable goods orders in October indicates that business equipment investment continues to hold up reasonably well in the face of higher borrowing costs, helped by …
The resilience of consumer spending is keeping hopes of a soft landing alive. Although GDP growth looks to have slowed in the fourth quarter, and most leading indicators of recession are flashing red, solid retail sales and a jump in vehicle sales …
22nd November 2022
This week Fed officials pushed back against the market rally in the wake of October’s unexpectedly weak CPI report, but with only limited success. Despite officials reaffirming that they still had “a ways to go” in tightening policy and that they …
18th November 2022
Consumers refuse to buckle under weight of higher rates The strength of underlying retail sales despite higher borrowing costs is encouraging, but manufacturing is slowly succumbing to the global malaise. The consumer is hanging in there, with retail …
16th November 2022
Manufacturing close to stagnation In contrast to the earlier news of consumer resilience, there are signs of a deterioration in the manufacturing sector, with output rising by only 0.1% in October, September’s gain cut from 0.4% to 0.2%, and downward …
Consumer refuses to buckle under weight of higher borrowing costs The US consumer is hanging in there under the weight of rapidly rising borrowing costs, with retail sales increasing by a solid 1.3% m/m in October. Admittedly, sales last month were …
Sentiment buckles under weight of higher interest rates The drop back in the University of Michigan’s consumer sentiment index to a five-month low of 54.7 in November, from 59.9, appears to reflect the damage that higher interest rates are doing, …
11th November 2022
While the outcome of the midterms remains unclear, far more important for the economy was October’s softer-than-expected core CPI data, which support our view that the Fed won’t need to raise interest rates as far as markets had feared. Softer core CPI …
Goods deflation begins; health insurance flips The better than expected 0.3% m/m increase in core consumer prices in October won’t on its own persuade the Fed to drop its hawkish stance. But we expect this to mark the start of a much longer …
10th November 2022
Goods disinflation broadening; health insurance flips The better than expected 0.3% m/m increase in core consumer prices in October won’t on its own persuade the Fed to drop its hawkish stance. But we expect this to mark the start of a much longer …
Republicans fail to deliver knock-out blow While the results remain too close to call, the Republicans are on course to win only the narrowest of majorities in the House, and control of the Senate will probably be decided by another run-off election in …
9th November 2022
The Fed’s mounting losses are an expected result of surging interest rates and will not prevent officials from continuing to tighten policy, nor will they require the Treasury to step in and “recapitalize” the central bank. But it does mean that …
8th November 2022
Higher interest rates have dramatically curbed the demand for home mortgages and auto loans, but there is only limited evidence of banks tightening lending standards, which suggests that they expect loan losses to remain relatively muted . The Fed’s …
7th November 2022
This week’s FOMC meeting may have dashed hopes that the Fed will follow the recent dovish tilts of some other central banks. But we still think Fed officials are underestimating the degree to which their aggressive rate hikes will put downward pressure on …
4th November 2022
Mixed employment report won’t alter the Fed’s hawkish bent The October employment report had something for everyone, with continued strong gains on the payroll survey while the household measure showed a sharp fall in employment and a rise in …
Mixed employment report won’t alter the Fed’s hawkish bent The October employment report had something for everyone, with payrolls pointing to continued strong employment gains while the household survey showed a sharp fall in employment and a rise in …
Our US Economics team held a briefing shortly after the October data release, in which they answered client questions and addressed key issues around what was happening at the Fed and Congress, including: How far the Fed will raise interest rates; Whether …
Services activity at a two-and-a-half-year low The decline in the ISM services index to a two-and-a-half-year low of 54.4 in October, from 56.7, leaves it at a level that has historically been consistent with only muted GDP growth of around 1% annualised. …
3rd November 2022
Exports fading; better news on unit labour costs A drop back in exports and small rebound in imports means the trade deficit bounced back to $73.3bn in September, from a downwardly revised $65.7bn. With that weakness in exports likely to last for some …
Strength of net exports fading; better news on unit labour costs won’t stop the Fed hiking yet A drop back in exports and small rebound in imports means the trade deficit bounced back to $73.3bn in September, from a downwardly revised $65.7bn. With the …
The Fed raised its policy rate by another 75bp today, to between 3.75% and 4.00%, but laid the groundwork in the accompanying statement for a downshift to a 50bp hike at the next meeting in mid-December. With Chair Jerome Powell noting repeatedly that the …
2nd November 2022
Fed continues with 75bp hike, but open to smaller 50bp increase next month The Fed raised its policy rate by another 75bp today, to between 3.75% and 4.00%, but laid the groundwork in the accompanying statement for a probable drop down to a 50bp hike at …
