Economic Update | September 2022

As the summer season begins to wane, Ginger Chambless, Head of Research for JPMorgan Chase Commercial Banking, takes stock of the economic landscape today.?

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Economics and markets: Retail spending growth rises as gas prices retreat

Lower gasoline prices in July allowed for stronger spending elsewhere, notably online purchases. If inflation continues to retreat as we expect, sales in other categories could recover further.

Labor: Conditions remain tight yet payrolls start to resemble pre-pandemic levels

28 months after the pandemic onset and setbacks to the labor markets, we see a full recovery in payrolls. Demand for workers continues to exceed supply, with reduced participation and immigration patterns.

Inflation: Finally could be past peak, though some persistence ahead

While the drop in headline inflation to 8.5% in July was a relief, largely reflecting lower gas prices, the overall level is too high and the persistence of core inflation (services, rents) suggests no quick fix.

Supply chain: Clear signs of reduced pressure, but tensions remain

Supply chain pressures ease, with ocean freight costs down 33% from the beginning of the year and faster delivery times. This is likely due to moderating demand and relaxing of pandemic restrictions.

Interest rates: Set to rise further as inflation and jobs market still overheated

We expect another 125 basis points of hiking this cycle for a terminal fed funds rate range of 3.50-3.75%. This would be considered “restrictive,” as it’s above the estimated “neutral” funds rate of 2-2.5%.

Washington: The Inflation Reduction Act was signed into law on Aug. 16 by President Biden

The Act will provide government funding for climate change initiatives, healthcare subsidies and deficit reduction. Funding will come from tax provisions and prescription drug price reform.

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