![]() ![]() Further projections showed souring expectations for the health of the US economy, with Fed officials now predicting that unemployment will rise to 4.6% by the end of 2023 and remain at that level through 2024. Policymakers also projected that PCE inflation, the Fed’s favored price gauge, would remain far above its 2% target until at least 2025. Jerome Powell, chairman of the US Federal Reserve, from right, Lael Brainard, vice chair of the board of governors for the Federal Reserve System, and John Williams, president and chief executive officer of the Federal Reserve Bank of New York, during a break at the Jackson Hole economic symposium in Moran, Wyoming, on Aug. That would mean Fed officials expect to raise rates by half a percent more than they did three months ago, when the Fed’s economic predictions were last released. The December projections showed a more aggressive monetary policy tightening path, with the median forecast rising to a new interest rate peak of 5%-5.25%, up from 4.5%-4.75% in September. He added: “So, I would hope that they would take their own advice and pause fairly soon.” And when you see the Fed revising their unemployment projections up, revising their GDP growth number down, it seems that they agree.” “The rest of the economy, to us, is very clearly signaling slowdown, imminent recession. “This latent strength in the job market could be the reason that the Fed over-tightens,” he told CNN. ![]() However, a “structural labor shortage” remains a major headwind, Powell noted in December, attributing the lack of workers to early retirements, caregiving needs, Covid illnesses and deaths, and a plunge in net immigration.Īs such, employers are hesitant to lay people off, and other areas of the economy are showing such strength that those who are unemployed are able to get rehired quickly, Mayfield said. Good news on inflation: The Fed's favorite gauge shows price increases are moderating Shopping in a supermarket in New York on Friday, November 18, 2022. There are already signs that the labor market is softening: Quits and hires have edged downward, while layoffs have moved higher continuing claims have grown to their highest level since February and the number of jobs added each month has started to nudge slowly lower. That means the Fed, with its “laser focus on the job market,” could be “continually hawkish” at the start of 2023, said Ross Mayfield, investment strategy analyst at Baird. When the number of available jobs far outpaces those looking for work, wages can rise, which in turn could keep prices higher for longer. While the Fed has - finally - eked out some small victories in slowing the economy, after seven bumper rate hikes, the robust and historically tight labor market has remained a thorn in the central bank’s side. The Fed’s recently revised script calls for the federal funds rate, the central bank’s benchmark borrowing rate, to move higher, but at a slower pace than in the past several months. In a matter of weeks, the Fed’s Act II gets underway. “It’s just how quickly does that come down?”įederal Reserve Board Chairman Jerome Powell attends a news conference following a two-day meeting of the Federal Open Market Committee (FOMC) in Washington, July 27, 2022. “This idea of peak inflation, which people have been talking about for most of the year, is starting to look like it’s valid,” said Thomas Martin, senior portfolio manager at Globalt Investments. The latest measure of inflation showed that the Consumer Price Index for November came in at 7.1%, down from the 40-year high of 9.1% hit in June prices for used cars, lumber and gas - once poster children for the painfully steep price hikes - have come down and housing prices and rents have also been on a downward trajectory. America’s central bank found itself in a glaring spotlight for much of this past year, as Federal Reserve Chairman Jerome Powell wielded blunt tools of interest rate hikes and quantitative tightening to curb surging inflation.Īs 2022 draws to a close, inflation metrics show some of that may have worked: Consumer prices are cooling, home sales have ground to a halt, and some of America’s best-known companies have made plans to slow their roll and pull back on capital investment. ![]()
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