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Tag: stagflation

  • Americans are feeling a lot worse about the state of the economy

    (CNN) — American consumers are downbeat about the economy, according to preliminary results of a monthly survey conducted by the University of Michigan.

    The index measuring consumer sentiment fell unexpectedly this month to 55.4 from 58.2 in August as inflation is on the rise and job prospects are worsening. September’s reading also represents a 21% decline compared to a year ago, well before President Donald Trump took office and raised tariffs on practically everything the country imports.

    In addition to inflation and the labor market, tariffs also remain a concern for consumers, Joanne Hsu, the survey’s director, noted.

    “Trade policy remains highly salient to consumers, with about 60% of consumers providing unprompted comments about tariffs during interviews,” Hsu, said in a statement, noting that the same thing happened in the previous month.

    Economists polled by FactSet had been anticipating a minor improvement in consumer sentiment from August. Despite sentiment that’s near historic lows in a survey that goes back to the early 1950s, consumers are still feeling slightly better about the economy now compared to April and May during Trump’s initial rollout of so-called “reciprocal” tariffs, according to prior readings.

    The survey also spotlights what appears to be an increasingly bifurcated economy between income classes, where higher-income Americans continue to spend relatively freely and are feeling more optimistic about the state of the economy, while lower and middle-income Americans are cutting back and are more worried.

    Whiffs of stagflation

    While the economy is nowhere close to where it was in the 1970s and 1980s, when the nation’s annual inflation rate and unemployment rate both hit double-digit levels, recent employment and inflation data have led to mounting concerns of stagflation – when the economy slows significantly while inflation accelerates.

    Consumer prices rose 0.4% last month, bringing the annual inflation rate to 2.9%, according to Consumer Price Index data released Thursday. Meanwhile, there’s a laundry list of recent data pointing to a weakening labor market.

    For example, first-time applications for unemployment benefits surged last week to their highest level in four years. Also for the first time in four years, there are more people looking for work than there are jobs available for them.

    To top it off, the August employment report showed employers hired just 22,000 new workers and the unemployment rate rose to 4.3%, the highest level since 2021. The labor force snapshot also revealed that the US economy lost 13,000 workers in June, marking the first month since 2020 when employers laid off more workers than they hired.

    “Economic sentiment declined more than expected in September largely because Americans are fearful of losing their jobs,” Heather Long, chief economist at Navy Federal Credit Union, said in a statement on Friday.

    This string of data has essentially guaranteed the Federal Reserve will cut interest rates at its monetary policy meeting next week after having held rates steady for close to a year. Traders are also now betting on cuts at the subsequent two meetings this year, which has helped push stocks to record highs.

    This story has been updated with additional developments and context.

    Elisabeth Buchwald and CNN

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  • Hate to spoil the party but there’s a new risk in town — a ‘no landing’ economy

    Hate to spoil the party but there’s a new risk in town — a ‘no landing’ economy

    For the last 18 months, all you’ve heard from the markets is that the U.S. economy is three months away from a recession. Now, the popular analysis is that that inflation is on a smooth glidepath down and the economy will never have a downturn again.

    Worries about a recession have evaporated, and all the talk is about a “soft landing,” with the Federal Reserve not having to hike interest rates more than once more, at most.

    But behind the scenes, in some economic circles, there is growing concern about another risk for the economy, dubbed a “no landing” scenario.

    What does “no landing” mean? Essentially it’s marked by economic growth that’s too strong to allow inflation to fall all the way to 2%, where the Federal Reserve aims for it to be, and therefore an economy that will need more Fed rate hikes, according to Chris Low, chief economist at FHN Financial.

    So instead of the U.S. central bank starting to cut rates early next year, there may be more rate hikes in store.

    “There is still considerable work to do before the inflation beast is fully tamed,” Low said.

    Former Fed Vice Chair Richard Clarida described the risk in crystal-clear terms. “If the Fed finds itself  in March 2024 with an unemployment rate of 4% and an inflation rate of 4% with some of that temporary good news behind them, they are in a very tough spot,” Clarida said in a recent interview with Bloomberg News.

    “It is a risk. It is not the base case. But if I was still there [at the Fed], I would be assessing it,” he added.

    So why does this matter? Why would the Fed be in such a tough spot? Two words: presidential election.

    A Fed that is dedicated to bringing inflation down might have to slam the brakes on the economy forcefully to get the job done. That gets tough during an election year, especially one that already seems poised to be filled with acrimony.

    “The Fed does not play politics with monetary policy. The FOMC will do what is right for the economy, election year or not. Nevertheless, FOMC participants are already sensitive to triggering a recession. Doing it in an overt way when Congress, a third of the Senate, and the White House are up for grabs would be reckless,” Low said.

    Andrew Levin, professor of economics at Dartmouth College and a former top Fed staffer, said “raising interest rates sharply in the midst of an election cycle could be a delicate matter. Even the vaunted inflation fighter, Paul Volcker [the Fed’s chairman from 1979 to 1987], decided to ease off the brakes midway through the 1980 presidential campaign.”

    Ray Fair, a Yale economics professor, thinks that, whether or not the Fed successfully lowers consumer-price inflation to the vicinity of 2% will be what really matters for the 2024 presidential election. If inflation does not go gently and the Fed is still fighting next year, it would likely be negative for President Joe Biden and the Democratic Party, he said.

    See: Inflation could rebound later this year. And that might be a good thing.

    To avoid hiking rates next year, the Fed, in Low’s view, will raise interest rates to 6% by the end of this year. That is an out-of-consensus call. Financial markets think the Fed is done hiking with its benchmark policy interest rate in a range of 5.25% to 5.5%.

    Many economist and the financial markets are talking more about prospective Fed rate cuts in early 2024 than any more hikes.

    Asked during a recent radio interview if he thought a “no landing” scenario was taking shape, Philadelphia Fed President Patrick Harker replied: “I don’t think so.”

    Harker said the economy was likely on track to return to the low-interest-rate and low-inflation environment of 2012-19.

    “I think about this a lot, and I asked myself what’s different fundamentally about the U.S. economy now then the way it was before the pandemic,” Harker said. He concluded that there wasn’t much difference.

    The big trend Harker mentioned was demographics, with baby boomers still moving in large numbers into retirement. “I don’t think we have to stay in a high-inflation regime. I think we can get back to where we were,” he said.

    Steve Blitz, chief U.S. economist at research firm GlobalData.TSLombard, said he puts the probability of a “no landing” scenario at about 35%.

    Blitz added it was a common mistake for economists, policy makers, traders and journalists “to presume that the expansion to come is going to look like the expansion that was.”

    “At least in the United States, that was never the case,” he added.

    Blitz said that if the U.S. economy were growing at a rate below 2% with an inflation rate higher than 3%, the Fed would have to raise the policy rate to about 6.5%. But if the economy is humming along with 3% growth and inflation over 3%, that would be a trickier spot. “Does the Fed really want to slow that down?” he asked.

    See: The U.S. economy is aiming for a three-peat: 2% GDP growth

    The range of possible outcomes for the economy remains wide. Some economists still believe that a recession early next is the most likely outcome.

    Other economists, like Michelle Meyer, chief U.S. economist at Mastercard, think the economy will continue to grow, with inflation coming down. Meyer described that outcome as “a soft landing with bumps.”

    Stephen Stanley, chief economist at Santander U.S., said he thinks the U.S. economy will “muddle through” next year with subpar growth in the range of 1% for several quarters and inflation slowing gradually.

    “Obviously, that optimism melts away if we’re back to readings of 0.4% and 0.5% on core CPI in three months or six months,” Stanley said.

    Economic calendar: See what’s on the U.S. economic-data docket in the coming week

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  • U.S. wholesale prices surprise to the upside in July, PPI shows

    U.S. wholesale prices surprise to the upside in July, PPI shows

    The numbers: The U.S. producer price index rose 0.3% in July, the Labor Department said Friday, up from a revised flat reading in June and the largest gain since January.

    Economists polled by The Wall Street Journal had forecast a 0.2% advance.

    The core producer price index, which excludes volatile food, energy prices, and trade services rose 0.2 in July, up from a 0.1% gain in the prior month. This is the largest increase since February.

    Key details: Over the past year, headline producer price inflation was running at a 0.8% rate in July, up from 0.2% in the prior month.

    Core prices are up 2.7% from a year earlier, matching the gain in June. Core PPI prices were running at a 5.8% rate in July 2022.

    A big part of the increase in producer prices was in the services sector.

    The cost of services rose 0.5% last month, up from a 0.1% drop in June. This is the largest increase in a year. The increase was led by a 7.6% gain for portfolio management.

    The cost of goods rose 0.1% in July after a flat reading in the prior month.

    Energy prices were flat in July, down sharply from a 0.7% gain in the prior month.

    Wholesale food prices jumped 0.5% after a 0.2% fall in the prior month.

    Further back on the production line, prices for intermediate goods fell 0.6%, the sixth straight monthly decline.

    Big picture: Price pressures have been diminishing at the producer level much faster than at the consumer level. Economists are watching the inflation data closely to see if the July interest rate hike by the Federal Reserve was the last hike of the cycle.

    What are they saying? “In short, PPI surprised to the upside in July. While we do not expect further rate hikes this year, if inflation surprises to the upside and the labor market and growth do not slow, another increase in interest rates cannot be ruled out in 2023,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

    Market reaction: U.S. stocks
    DJIA

    SPX
    were set to open lower on Friday after the stronger-than-expected PPI data. The yield on the 10-year Treasury note
    BX:TMUBMUSD10Y
    rose to 4.12%.

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  • U.S. consumer sentiment soars in July to highest level since September 2021

    U.S. consumer sentiment soars in July to highest level since September 2021

    The numbers: The University of Michigan’s gauge of consumer sentiment rose to a preliminary July reading of 72.6 from a June reading of 64.4. It is the largest gain since December 2005. Sentiment is at its highest level since September 2021.

    Economists polled by the Wall Street Journal had expected a June reading of 65.5.

    However, Americans’ expectations for overall inflation over the next year rose to 3.4% in July from 3.3% in the prior month. Expectations for inflation over the next 5 years ticked up to 3.1% from 3% in June.

    Key details: According to the UMich report, a gauge of consumers’ views on current conditions jumped to 77.5 in July from 69 in the prior month, while a barometer of their expectations rose to 69.4 from 61.5.

    Big picture: Sentiment is improving as gasoline prices have held steady this summer. Low unemployment is also playing a role.

    What are they saying? “The good news is that sentiment has roughly retraced half of its fall from pre-pandemic levels. For most Americans, a modest gain in income is expected. Still, durable goods buying conditions remain far off their recent levels. The rise in confidence seems restrained, and clouds concern about the forecasted economic downturn which continues to linger,” said Scott Murray, economist at Nationwide, in a note to clients.

    Market reaction: Stocks
    DJIA,
    +0.33%

    SPX,
    +0.10%
    opened higher on Friday while the yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.805%
    rose to 3.81%.

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  • Fed’s Waller, unimpressed by inflation data, calls for two more rate hikes this year

    Fed’s Waller, unimpressed by inflation data, calls for two more rate hikes this year

    Federal Reserve Board Gov. Christopher Waller said Thursday he was not swayed by June’s benign consumer inflation data, and said he wants the central bank to go ahead with two more 25-basis-point rate hikes this year.

    “I see two more 25-basis-point hikes in the target range over the four remaining meetings this year as necessary to keep inflation moving toward our target,” Waller said in a speech to bond-market experts, known as The Money Marketeers of New York University.

    That would bring the Fed’s benchmark rate to a range of 5.5%-5.75%.

    Waller said that, while the cooling of CPI data for June was welcome news, “one data points does not make a trend.”

    “The report warmed my heart, but I have got to think with my head,” Waller said.

    He noted that inflation slowed in the summer of 2021 before rocketing higher.

    In his remarks, Waller said he is now more confident that the contagion from the collapse of Silicon Valley Bank in March will not create a significant problem for the economy.

    “I see no reason why the first of those two hikes should not occur at our meeting later this month,” he said.

    Traders in derivative markets have priced in high odds of a rate hike after the Fed’s meeting in two weeks. But traders have been skeptical the Fed will follow through with a second hike, even before the soft CPI data.

    Waller said the timing of the second hike depends on the data.

    “If inflation does not continue to show progress and there are no suggestions of a significant slowdown in economic activity, then a second 25-basis-point hike should come sooner rather than later, but that decision is for the future,” he said.

    During a question-and-answer session, Waller stressed that September was a “live meeting,” meaning the Fed could hike rates at that time.

    Some economists had thought the Fed was moving to an “every-other-meeting” pace of hikes, but Waller said he did not favor such mechanical moves, and that data should be the deciding factor.

    Some Fed officials want the central bank to hold rates steady in July, and perhaps through the end of the year, thinking the economy is going to be hit by “lagged” effects from past rate hikes.

    Waller said he believes the bulk of the effects from last year’s tightening have passed through the economy already.

    “Pausing rates now, because you are waiting for long and variable lags to arrive, may leave you standing on the platform waiting for a train that has already left the station,” he said.

    The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.786%
    has fallen to 3.77% this week after a lower-than-expected gain in jobs in the June report and the cooling of inflation. The yield had hit a recent high of 4.07% ahead of those softer reports.

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  • Some Fed officials pushed for June rate hike, minutes show

    Some Fed officials pushed for June rate hike, minutes show

    There was support from an unspecified number of Federal Reserve officials for an interest rate hike at the central bank’s policy meeting in June, according to a summary of the discussions released Wednesday.

    “Some participants indicated that they favored raising the target range for the federal funds rate 25 basis points at this meeting or they could have supported such a proposal,” the minutes of the June 13-14 meeting said.

    These…

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  • Jamie Dimon talks stagflation, competing as ‘little guy’ in Bank of America’s yard

    Jamie Dimon talks stagflation, competing as ‘little guy’ in Bank of America’s yard

    JP Morgan CEO Jamie Dimon slaps hands with staff members as he enters the company’s office at 112 South Tryon Street in Charlotte, NC on Thursday, September 29, 2022.

    JP Morgan CEO Jamie Dimon slaps hands with staff members as he enters the company’s office at 112 South Tryon Street in Charlotte, NC on Thursday, September 29, 2022.


    JEFF SINER

    jsiner@charlotteobserver.com

    Toppling Bank of America’s crown in Charlotte? Jamie Dimon wouldn’t rule it out.

    The chief executive of JP Morgan Chase, the country’s biggest bank by assets, stopped in the city on Thursday, visiting with employees at a Chase branch in uptown Charlotte.

    The branch — coincidentally located across the street from competitor Bank of America’s corporate headquarters — opened in early 2020. It was Chase’s first location in the city.

    Now, the New York-based bank is up to 17 branches throughout the Charlotte region, with three more slated to open in 2023.

    “We’re going to double down,” Dimon told employees. “We’re not gonna stop.”

    JP Morgan Chase has about $3.4 trillion in assets— but here in Banktown, it punches well below its weight, controlling only 0.12% of the deposit market.

    In an interview with The Charlotte Observer, Dimon said he’s confident that’ll change.

    The Observer sat down briefly with Dimon. Here’s what he had to say about expanding in North Carolina, competing in Charlotte and the “storm clouds” looming over the U.S. economy.

    CLT_JS_JAMIE_DIMON_03
    JP Morgan CEO Jamie Dimon at 112 South Tryon Street in Charlotte, NC on Thursday, September 29, 2022. JEFF SINER jsiner@charlotteobserver.com

    This interview has been edited for brevity and clarity.

    30 branches across North Carolina since 2019— why so many?

    “If you laid out a map, and you said you want to open branches — one or two, that’s not enough. You’ve got to have a plan. The plan is to cover where you live, where you work, high population (areas)… It includes that we have small businesses, middle market companies, low income neighborhoods, higher income neighborhoods — that’s the plan. Then we roll it all out, and we bring in other stuff to support it.”

    What’s the ultimate goal?

    “To be the best bank in North Carolina. It’ll take a long time. Our shares are very small, but we’re patient. Here, we’re the little guy.”

    Can you out-do local bank competition?

    “You don’t know me very well, if you don’t think I aspire (to that). Of course, we can’t do it overnight. The next generation can finish that job.

    “But again, if you made a map of the United States, and you put a dot around all the major metropolitan areas, and then you made them green if it was growing rapidly and red if it wasn’t, this would be a green one… so it’s kind of a no brainer. “

    On the economy:

    “The stronger economy is meeting head on with inflation, rates, oil, QT (quantitative tightening), war, Russia, global uncertainty… and you’ve seen the results: volatile markets, things are down. People are getting nervous. Home prices stop going up, (though) that’s probably a good thing. So yeah, that’s exactly what’s happening.”

    Note: In Dimon’s annual letter to shareholders in April, he talked about looming challenges like increasing inflation, conflict in Ukraine and the lasting impact of pandemic-era government programs.

    Did he predict it accurately?

    “I don’t think I crystal-balled it. I think those things were actually there. That’s why I called them storm clouds…. they create a huge amount of uncertainty. They will have a guaranteed effect on the economy and more volatility. But I don’t know better than anyone else whether it’s gonna be a soft landing, medium landing, hard landing, or something even worse than that.”

    Note: A “soft” versus “hard landing” is often used to describe the possible outcomes of the U.S. Federal Reserve attempting to control inflation. In the first scenario, the country’s central bank raises interest rates just enough to slow price increases without tipping the economy into a recession. In a “hard landing,” it triggers a downturn.

    “I do know that the extent of this stuff taking place is abnormal,” Dimon continued. “You have to be prepared for the outcomes to be worse than you think… That’s just risk management. That’s not forecasting the future.”

    On the threat of stagflation and the worst outcomes for the U.S. economy:

    “Well, the worst thing is this war (in Ukraine) getting worse — the Western world not hanging together, and us not having the proper foreign policy, domestic policy and military policy to guarantee the free world remains free. That is the most important thing.

    “You’re gonna go through, in your lifetime, ups and downs in the economy, and at one point… it’s like the weather. You deal with it. You don’t know it’s gonna be, and you deal with it.

    “The reason I say stagflation is the worst outcome is because that is a recession or very slow growth with inflation. And what that means is that usually incomes don’t keep up with inflation, so people suffer far more.

    “It may or may not be in this case, we don’t really know. Unemployment’s at almost all time lows, and job openings are at all time highs. So it’s possible to have a pretty good slowdown — which could stop inflation, and people are still (able to get) jobs. That would be a very nice thing…. I’m hoping that we have just not too hard a landing here.”

    This story was originally published September 29, 2022 5:46 PM.

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    Hannah Lang covers banking, finance and economic equity for The Charlotte Observer. Her work has appeared in The Wall Street Journal, the Triangle Business Journal and the Greensboro News & Record. She studied business journalism at the University of North Carolina at Chapel Hill and grew up in the same town as her alma mater.

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