Month-In-Review: September 2022

September 2022

Stubbornly elevated costs have kept policy makers on a firm policy pathway to higher rates, opting to hike the federal funds target another 75bps in September. Marking the third outsized increase and 300bps in total, Fed officials have been clear more tightening is still needed to reinstate price stability. Investors, meanwhile, against the backdrop of mounting weakness in domestic activity, are anxious to know when the Fed will reduce the size of future increases and ultimately reverse course to presumably provide support to an economy falling into or further into recession.

The Fed has indicated a smaller 50bp hike could be on the horizon by the end of the year with an end to further increases altogether sometime in 2023. Depending on the perspective, however, inflation may not cooperate with the Committee’s seemingly expedited timeline to the terminal rate, while the economy may not be able to tread water for that that much longer, let alone for an extended period of time into 2023.

Market Activity and Commodities

·??????Equities – Stocks ended lower in September and finished down for the quarter. Beginning at 3,986.16, the S&P 500 fell 9.3% in September, closing at 3,585.62. The Dow, meanwhile, declined 8.8%, falling from 31,510.43 to 28,725.5.?Additionally, the Nasdaq dropped 10.5% in September, closing at 10,575.62. Quarter to date, the S&P 500 and Nasdaq posted their first three-quarter losing streak since 2009, with the S&P falling 5.3% and the Nasdaq dropping 4.1%. The Dow, meanwhile, plunged 6.7% in the third quarter and marked the third-straight losing quarter for the first time since 2015.

·??????Treasuries – Treasury yields rose in September after finishing higher in August. The 10-year Treasury yield rose 64bps from 3.19% to 3.83% in September, after briefly moving above 4% on September 28 for the first time since 2008. The 2-year Treasury yield, meanwhile, ended September up 78bps at 4.28%. Since the start of the year, the 2-year and 10-year are up 355bps and 232bps, respectively.

·??????Oil & Gas????????????

o??(Sep 26) – Oil prices fell $2 a barrel to settle at nine-month low as a strengthening dollar put pressure on prices and as market participants awaited details on new sanctions on Russia. Brent crude futures settled down $2.09, or 2.4%, to $84.06 a barrel, plunging below levels reached on January 14. WTI oil prices, meanwhile, dropped by $2.06, or 2.3% to $76.71, the lowest since January 6.

National Growth and Outlook

• NFIB Small Business Optimism (Sep 13) – The NFIB Small Business Optimism Index rose from 89.9 to 91.8 in August, more than the expected rise to 90.8, according to Bloomberg and a three-month high.

·??????Leading Index (Sep 22) – The Leading Index declined 0.3% in August, more than the 0.1% decrease expected and following a 0.5% drop the month prior.

• Chicago Fed National Activity Index (Sep 26) – The Chicago Fed National Activity Index unexpectedly dropped from a reading of 0.29 to 0.0 in August, a two-month low. According to Bloomberg, the index was expected to decline to a reading of 0.23 in August. The Chicago Fed National Activity Index draws on 85 economic indicators; a reading below zero indicates below-trend growth in the national economy and a sign of easing pressures on future inflation. In August, 46 of the 85 monthly individual indicators made positive contributions, while 39 made negative contributions.
• GDP (Sep 29) – GDP was unrevised at a 0.6% decline on an annualized basis in the final Q2 report, as expected and following a 1.6% drop in the first quarter. In the details, personal consumption was revised up from a 1.5% increase to a 2.0% gain in Q2, a two-quarter high. Goods consumption, however, was revised down from a 2.4% decline to a 2.6% drop due to a downward revision in durable goods consumption from a 0.1% drop to a 2.8% decline. Nondurable goods consumption, however, was revised up from a 3.7% to a 2.5% decline. Services consumption, on the other hand, was revised up a full percentage point to a 4.6% increase, a three-quarter high. Gross private investment, a gauge of business spending, was revised down from a 13.2% decline to a 14.1% drop, the largest quarterly decline since Q2 2020. Fixed investment was revised down a half of a percentage point to a 5.0% decline in the second quarter, following a 7.4% gain the quarter prior. Nonresidential investment, including office buildings and factories, was revised up a tenth of a percentage point to a 0.1% increase, due to upward revisions to equipment investment and structures investment. Equipment investment was revised up from a 2.7% decline to a lesser 2.0% fall, and structures investment was revised higher from a 13.2% drop to a 12.7% decline. Intellectual property investment, on the other hand, was revised down from a 10.0% increase to an 8.9% gain. Additionally, residential investment was revised down from a 16.2% decline to a 17.8% drop, the largest quarterly decline in two years. On the trade side, exports were revised down from a 17.6% gain to a 13.6% increase, still a two-quarter high, and imports were revised down from a 2.8% gain to a lesser 2.2% increase. Finally, government consumption was revised up two-tenths of a percentage point to a 1.6% decline, the third consecutive quarter of decline. Federal spending was revised up from a 3.9% drop to a 3.4% decline, and national defense spending was revised higher from a 1.1% increase to a 1.4% increase, following five consecutive quarters of decline. Additionally, nondefense spending was revised up from a 10.4% decline to a 9.2% decrease, while state and local spending was unrevised at a 0.6% decrease in Q2.

Employment

• Jobless Claims
• (Sep 1) – Initial jobless claims unexpectedly fell 5k from 237k to 232k in the week ending August 27, the third consecutive week of decline. Jobless claims were expected to rise to 248k, according to Bloomberg. Continuing claims, however, or the total number of Americans claiming ongoing unemployment benefits, rose from 1.41M to 1.44M in the week ending August 20, the highest since the start of April.
• (Sep 8) – Initial jobless claims unexpectedly fell 6k from 228k to 222k in the week ending September 3, the fourth consecutive week of decline and the lowest since May. Jobless claims were expected to rise to 235k, according to Bloomberg. Continuing claims, however, or the total number of Americans claiming ongoing unemployment benefits, rose from 1.44M to 1.47M in the week ending August 27, the highest since the start of April.
• (Sep 15) – Initial jobless claims unexpectedly fell 5k from 218k to 213k in the week ending September 10, the fifth consecutive week of decline and the lowest since May. Jobless claims were expected to rise to 227k, according to Bloomberg. Continuing claims, however, or the total number of Americans claiming ongoing unemployment benefits, rose slightly from 1.401M to 1.403M in the week ending September 3.
• (Sep 22) – Initial jobless claims rose 5k from 208k to 213k in the week ending September 17, the first rise in six weeks, albeit still historically low. Jobless claims were expected to increase to 217k, according to Bloomberg. Continuing claims, however, or the total number of Americans claiming ongoing unemployment benefits, fell from 1.40M to 1.38M in the week ending September 10, the lowest since mid-July.
• (Sep 29) – Initial jobless claims unexpectedly fell 16k from 209k to 193k in the week ending September 24, the lowest level since April. Jobless claims were expected to rise to 215k, according to Bloomberg. Continuing claims, meanwhile, or the total number of Americans claiming ongoing unemployment benefits, fell from 1.38M to 1.35M in the week ending September 17, the lowest since the start of July.
• Nonfarm Payrolls (Sep 2) – Nonfarm payrolls rose by 315k in August, surpassing the 298k gain expected, according to Bloomberg. July payrolls, however, were revised down from a 528k rise to a 526k increase, and June payrolls were revised lower from a 398k gain to a 293k rise. Thus, the overall change in nonfarm payrolls (August data + net revisions) was 208k. In the details, private payrolls rose by 308k in August, following a 477k gain in July. Goods-producing payrolls, meanwhile, rose 45k due to a 22k gain in manufacturing payrolls and a 16k rise in construction payrolls. Service producing payrolls rose by 263k in August, following a 411k gain in July. Education and health payrolls and business services payrolls led the gain in service payrolls both rising 68k, following a 118k and an 84k rise, respectively, the month prior. Trade and transport payrolls rose 65k, thanks to a 44k gain in retail trade payrolls, leisure and hospitality payrolls rose 31k, and financial payrolls increased by 17k in August. Also, temporary help payrolls rose 12k, and information payrolls gained 7k. Additionally, government payrolls increased 7k in August, following a 49k increase in July.
• Participation Rate (Sep 2) – The civilian labor force 786k following a 63k drop in July. As a result, the labor force participation rate rose from 62.1% to 62.4% in August, a five-month high and surpassing the increase to 62.2% expected.
• Unemployment Rate (Sep 2) – Household employment rose by 442k in August following a 179k rise the month prior. With a 786k rise in the labor force, the unemployment rate ticked up from 3.5% to 3.7% in August, a six-month high. According to the median forecasts, the unemployment rate was expected to remain at 3.5% for the second consecutive month.
• Average Hourly Earnings (Sep 2) – Average hourly earnings rose 0.3% in August, less than the 0.4% gain expected and following a 0.5% increase in July. Year-over-year, wages rose 5.2% in August for the third consecutive month.
• Average Weekly Hours (Sep 2) – The average workweek fell from 34.6 to 34.5 hours in August, a two-month low.

Consumer Activity and Confidence

• Vehicle Sales (Sep 1) – Total vehicle sales fell from 13.35m to a 13.18m unit pace in August, more than the expected decline to 13.30m, and a two-month low. Over the past 12 months, vehicle sales rose a minimal 0.5%, following thirteen consecutive months of a negative print.
• Consumer Credit (Sep 8) – Consumer credit rose by $23.81b in July, less than the $32.00b rise expected and down from a $39.05b increase in June.
• Retail Sales (Sep 15) – Retail sales unexpectedly rose 0.3% in August, the strongest monthly pace in two months. Retail sales were expected to be flat (0.0%) in August, according to Bloomberg. July sales, however, were revised down from a flat reading to a 0.4% decline. Year-over-year, retail sales rose 9.1% in August, down from the 10.1% gain in July. Car sales rose 2.8% in August following a 2.0% decline the month prior, while gasoline stations sales dropped 4.2% following a 2.3% decline the month prior. Excluding autos, retail sales fell 0.3% in August, but climbed 9.7% over the past 12 months. Excluding autos and gasoline, retail sales gained 0.3% and increased 7.6% year-over-year. In the details, miscellaneous sales rose 1.6%, eating and drinking sales climbed 1.1% in August, following a 0.8% decrease in July, and building materials sales also rose 1.1% in August, following a 1.3% increase in July. Also, sporting goods sales rose 0.5%, as did food and beverage sales, and clothing sales rose 0.4%. Additionally, general merchandise sales increased 0.5% in August, due to a 0.9% gain in department store sales, the largest gain in three months. On the weaker side, furniture sales dropped 1.3%, the fourth consecutive month of decline, non-store retailer sales fell 0.7%, and health and personal care sales declined 0.6% in August.
• University of Michigan Consumer Sentiment
• (Sep 16) – The University of Michigan Consumer Sentiment Index rose from 58.2 to 59.5 in September, less than the expected rise to 60.0, albeit still a five-month high. In the details of the report, a gauge of current conditions rose from 58.6 to 58.9, a four-month high, and a gauge of future expectations increased from 58.0 to 59.9 in the preliminary September report, the highest since April. Additionally, the expected change in median prices over the next 5-10 years declined from 2.9% to 2.8%, the lowest since July 2021.
• (Sep 30) – The University of Michigan Consumer Sentiment Index was revised down from 59.5 to 58.6 in the final September print, albeit still a five-month high. In the details of the report, a gauge of current conditions was revised higher from 58.9 to 59.7, while a gauge of future expectations fell from 59.9 to 58.0, matching the reading in August.
• Consumer Confidence (Sep 27) – Consumer confidence, according to the Conference Board, rose from 103.6 to 108.0 in September, more than the expected increase to 104.6 and a five-month high. In the details of the report, a gauge of current conditions rose from 145.3 to 149.6, and future expectations climbed from 75.8 to 80.3 in September, a seven-month high.
• Consumer Spending & Income (Sep 30) – Consumer spending rose 0.4% in August, double the 0.2% gain expected according to Bloomberg, and following a 0.2% drop in July. Personal income, meanwhile, rose 0.3% in August, as expected and following a similar gain in July. Year-over-year, consumer spending increased 8.2% and personal income rose 3.9%. Adjusting for inflation, real consumer spending rose 0.1%, a two-month high, and real income increased 0.1% in August, down from a 0.5% gain in July. Over the past 12 months, real spending rose 1.8%, the weakest annual gain since February 2021, while real income fell 2.3%, the sixth consecutive month of decline.

Inflation

• CPI (Sep 13) – The CPI rose 0.1% in August, following a flat (0.0%) reading the month prior. The CPI was expected to decline 0.1%, according to the median estimate on Bloomberg.?Year-over-year, consumer prices rose 8.3%, down from the 8.5% pace reported the month prior and the second consecutive month of cooling price pressures, albeit still near a four-decade high. Food prices rose 0.8%, while energy prices dropped 5.0% in August, following a 4.6% decline in July. Excluding food and energy costs, the core CPI rose 0.6%, double the 0.3% rise expected and following a 0.3% increase in July. Year-over-year, the core CPI increased 6.3%, up from the 5.9% gain the month prior, albeit still lower than the near-term peak of 6.5% in March. In the details, housing prices increased 0.8%, thanks to a 0.7% rise in the OER, medical care prices increased 0.7%, other goods and services costs also gained 0.7%, and recreation prices rose 0.2% in August. Also, apparel prices rose 0.2%, and education and communication prices gained 0.1%. On the other hand, transportation prices fell 2.3%, due to a 0.1% decline in used cars and truck prices. New vehicle prices, however, rose 0.8%. Additionally, commodities prices fell 0.8%, and airline fares dropped 4.6% in August, the third consecutive month of decline.

·??????PPI (Sep 14) – The PPI fell 0.1% in August, as expected and following a 0.4% decline in July. Year-over-year, producer prices rose 8.7% in August, less than the 8.8% gain expected and down from a 9.8% increase in July. Food prices were flat (0.0%), while energy prices declined 6.0% in August, the second consecutive month of decline. Excluding food and energy costs, the core PPI rose 0.4%, more than the 0.3% increase expected, and following a 0.3% gain in July. Year-over-year, the core PPI increased 7.3% in August, a ten-month low, albeit more than the 7.0% annual increase expected. Additionally, services costs rose 0.4%, due to a 0.8% rise in trade costs. Transportation and warehousing costs, however, fell 0.2% following a 0.8% decline the month prior.

• PCE (Sep 30) – The PCE, the Fed’s preferred measure of inflation, rose 0.3% in August, surpassing the 0.1% gain expected and the largest monthly increase since June’s 1.0% rise. Year-over-year, headline inflation increased 6.2%, down from the 6.4% increase reported in July, albeit still near a four-decade high. Excluding food and energy, the core PCE rose 0.6% in August, a tenth of a percentage point more than expected and following a flat reading in July. Year-over-year, core inflation increased 4.9%, up from the 4.7% annual increase last month.?

Manufacturing and Production Activity

• ISM Manufacturing (Sep 1) – The ISM Manufacturing Index remained at a reading of 52.8 in August for a second consecutive month, a more than two-year low. The index, however, was expected to decline further to a reading of 51.9 in August. In the details of the report, new orders rose from 48.0 to 51.3, and employment gained from 49.9 to 54.2, following three months of contraction (a reading below 50). On the other hand, supplier deliveries inched lower from 55.2 to 55.1, prices paid dropped from 60.0 to 52.5 in August, the lowest reading since June 2020, and production fell from 53.5 to 50.4 in August. Additionally, inventories slipped from 57.3 to 53.1, new export orders dropped from 52.6 to 49.4, and imports fell from 54.4 to 52.5 in August.
• ISM Services (Sep 6) – The ISM Services Index unexpectedly rose from 56.7 to 56.9 August, a four-month high. According to Bloomberg, the index was expected to decline to a reading of 55.3 in August. In the details of the report, new orders increased 1.9 points to 61.8, and employment rose from 49.1 to 50.2, a three-month high. On the other hand, prices paid dropped 0.8 points to 71.5, backlog of orders declined from 58.3 to 53.9, and supplier deliveries dropped 3.3 points to 54.5 in August, the lowest reading since February 2020.
• Empire Manufacturing (Sep 15) – The Empire Manufacturing Index rose nearly 30 points from -31.3 to -1.5 in September, a two-month high, albeit still in contractionary territory. The index was expected to rise to -12.9, according to Bloomberg. In the details of the report, new orders rose from -29.6 to +3.7, shipments jumped by a record 43.7 points to 19.6, and employment picked up slightly from 7.4 to 9.7 in September. On the other hand, prices paid declined for the third month from 55.5 to 39.6, and prices received dropped from 43.6 to 39.6, the lowest reading since February 2021.
• Industrial Production (Sep 15) – Industrial production unexpectedly declined 0.2% in August, the largest monthly decline since December of last year. According to Bloomberg, production was expected to be flat (0.0%).
• Capacity Utilization (Sep 15) – Capacity utilization slipped from 80.2% to 80.0%, a two-month low.
• Philly Fed Business Outlook Survey (Sep 15) – The Philly Fed Index declined from 6.2 to -9.9 in September, a two-month low. According to Bloomberg, the index was expected to fall to a reading of 2.3 at the end of Q3. In the details of the report, shipments fell 16 points to 8.8, new orders decreased from -5.1 to -17.6, and the number of employees declined from 24.1 to 12.0, the lowest since December 2020. On the other hand, prices paid dropped from 43.6 to 29.8, while prices received rose from 23.3 to 29.6 in September.
• Kansas City Fed Manufacturing (Sep 22) – The Kansas City Fed Index unexpectedly declined two points to a reading of 1 in September, the lowest reading since July 2020. According to Bloomberg, the index was expected to rise to a reading of 5. In the details of the report, the volume of new orders declined rose from -16 to -11, and prices paid increased from 38 to 41, while the number of employees was unchanged at a reading of 10. The six-month ahead index, meanwhile, declined one point to a reading of 9 in September.
• Dallas Fed Index (Sep 26) – The Dallas Fed Manufacturing Activity Index unexpectedly fell from -12.9 to a reading of -17.2 in September, a two-month low and marking the fifth consecutive month of decline. The index was expected to rise to -9.0 at the start of Q4, according to median estimates. In the details of the report, production rose from 1.2 to 9.3, shipments gained from 3.4 to 7.1, and capacity utilization improved from -0.6 to 13.4 in September, a four-month high. On the other hand, new orders fell two points to -6.4, employment declined from 15.6 to 15.0, and the outlook for six-months ahead dropped from -8.8 to -22.4 in September, the lowest in three months.
• Richmond Fed Manufacturing (Sep 27) – The Richmond Fed Index rose eight points to 0.0 in September, a two-month high. According to the median forecast, the index was expected to fall to -10. In the details of the report, shipments rose from -8 to +14, new order volume gained from -20 to -11, and capacity utilization increased one point to -4. On the other hand, order backlogs declined one point to -25, inventory levels of finished goods slowed to -8 after a reading of -5 last month, and employment dropped from 11 to 0 in September, the lowest reading since July 2020.
• Durable Goods (Sep 27) – Durable goods orders fell 0.2% in August, slightly less than the 0.3% decline expected and following a 0.1% decrease in July. Year-over-year, headline orders rose 11.2% in August, up from the 9.2% annual increase the month prior. Transportation orders fell 1.1%, following a 0.7% decrease the month prior, due to an 18.5% drop in civilian aircraft orders. Excluding transportation, durable goods orders rose 0.2% in August and increased 7.7% over the past 12 months. In other details, computers and electronics orders increased 0.8%, machinery orders rose 0.3%, and primary metals orders gained 0.4%, following two consecutive months of decline. Also, electrical equipment orders increased 1.0% following a 0.6% decline the month prior. On the other hand, fabricated metals orders fell 0.7%.
• Capital Goods (Sep 27) – Capital goods orders fell 0.8% in August. Nondefense capital goods orders, meanwhile, declined 2.7%, following a 2.5% gain in July. Capital goods orders excluding aircraft and defense – a proxy for business investment – climbed 1.3% in August, more than the 0.2% rise expected and following a 0.7% increase in July. Year-over-year, business investment increased 9.8%.
• Chicago PMI (Sep 30) – The Chicago PMI fell from 52.2 to 45.7 in September, more than the expected decline to 51.8 and the lowest reading since June 2020. In the details, prices paid, inventories and supplier deliveries rose, signaling expansion, while new orders, employment and production fell, signaling contraction.

Housing Market Activity

• Construction Spending (Sep 1) – Construction spending dropped 0.4% in July, double the 0.2% decline expected and following an upwardly revised 0.6% gain in June. Over the past 12 months, however, construction spending rose 8.5% following a 10.8% increase the month prior.
• NAHB Housing Market Index (Sep 19) – The NAHB Housing Market Index fell from 49 to 46 in September, more than the expected decline to 48 and the lowest reading since May 2020.
• Building Permits (Sep 20) – Building permits fell 10.0% in August, pulling the annual pace down from 1.685M to 1.517M, the lowest since June 2020. Building permits were expected to decline 4.8%, according to Bloomberg. Single family permits dropped 3.5%, and multi-family permits declined 17.9%. Year-over-year, building permits fell 14.4% in August following a 1.8% increase in July.
• Housing Starts (Sep 20) – Housing starts rose 12.2% in August, pulling the annual pace up from 1.404M to 1.575M, a two-month high. Starts were expected to rise a minimal 0.3%, according to the median forecast on Bloomberg. Single family starts rose 3.4%, and multi-family starts jumped 28.0%. Year-over-year, housing starts fell 0.1% in August, the fourth consecutive month of decline. On a regional basis, starts rose in three of the four regions of the country in August: Starts increased 19.3% in the Midwest, 24.5% in the South and 1.1% in the West. However, starts fell 17.3% in the Northeast.
• Existing Home Sales (Sep 21) – Existing home sales declined for the seventh consecutive month, falling 0.4% to a 4.80M unit pace, the lowest since May 2020. According to the median estimate on Bloomberg, however, existing home sales were expected to drop 2.3%. In the details of the report, single family sales fell 0.9%, while multi-family sales increased 4.0%. Year-over-year, existing home sales declined 19.9% in August, the thirteenth consecutive month of decline. As a result of a decline in sales, the months’ supply of existing homes remained at 3.3 months, averaging 3.1 months over the past three months. From a price standpoint, the median cost of a previously owned home rose 7.7% in August from a year earlier to $389.5k, a five-month low.
• New Home Sales (Sep 27) – New home sales jumped 28.8% in August from 532k to 685k, a five-month high. New home sales were expected to decline 2.2%, according to the median forecast on Bloomberg. Year-over-year, sales fell 0.2%, the third consecutive month decline. Due to a rise in sales, the months’ supply of new homes fell from 10.4 months to 8.1 months. From a price standpoint, the median cost of a newly constructed home declined 6.3% from the month prior to $437k. Year-over-year, however, new home prices increased 8.0%.
• S&P/CS 20 City Index (Sep 27) – The S&P Case-Shiller 20 City Home Price Index unexpectedly fell 0.44% in July. According to Bloomberg, the index was expected to rise 0.20%. Over the past 12 months, the 20-city home price index rose 16.06%, down from the 18.66% rise the month prior. On a national level, home prices fell 0.24% and rose 15.8% over the past 12 months, down from the 18.1% gain in June.
• Pending Home Sales (Sep 28) – Pending home sales dropped 2.0% in August following a 0.6% decline the month prior. According to median estimate, pending home sales were expected to fall 1.5%. Over the past 12 months, pending home sales plunged 22.5%, the ninth consecutive month of decline.

Trade and Currency

• British Pound
• (Sep 26) – The British pound declined almost 5% against the dollar reaching an all-time low. According to currency traders, the market move was in response to proposed tax cuts and spending initiatives by British Prime Minister Liz Truss and the latest data showing reduced growth and higher inflation.
• Trade (Sep 7) – The U.S. trade deficit narrowed for the fourth consecutive month, narrowing by 12.6% to $70.65b in July. According to Bloomberg, the deficit was expected to narrow to $70.2b. In the details, the value of goods and services exports increased 0.2% to a record $259.3b, while imports declined 2.9% to $329.9b.?
• Import & Export Prices (Sep 15) – Import prices fell 1.0% in August, less than the 1.3% decline expected and following a 1.5% drop in July. Export prices, meanwhile, declined 1.6% in August, more than the 1.1% fall expected and following a 3.7% drop the month prior. Over the past 12 months, however, import prices rose 7.8% and export prices increased 10.8%.

Monetary Policy, Reports, and Commentary

• Atlanta Fed GDPNow Forecast

o??(Sep 21) – Following a decline in existing home sales and weak building permits data, the Atlanta Fed’s GDPNow forecast for Q3 GDP was revised lower to a 0.2% increase, significantly lower than the 2.1% gain initially reported.??

• Fed Speak/News
• (Sep 7) – According to Richmond Fed President Thomas Barkin, a non-voting member of the FOMC, rates pushing above current expectations would not be a surprise. Speaking in an interview with the Financial Times, Barkin said rates rising above 3.5% to 4.0% “would not surprise me at all.”?“I have a bias in general towards moving more quickly, rather than more slowly, as long as you don’t inadvertently break something along the way.”
• (Sep 8) – According to San Francisco Fed President Mary Daly, the Fed doesn’t need to continue to make outsized increases. Speaking in a radio interview with KSL NewsRadio in Utah, Daly said, “We’re not in a position where we have to do outrageously large things in order to restore price stability, but we do have to slow the economy.”
• (Sep 9) – Speaking at the College of DuPage, Chicago Fed President Charles Evans said a 75bps increase could be appropriate at the September FOMC meeting, although he was not yet committed. “I think that we’ve got a good plan in place. We could very well do 75 in September. My mind is not made up. I do know that we need to be increasing interest rates up to a substantially higher level than where they are now.”
• (Sep 9) – St. Louis Fed President James Bullard agreed that a 75bps hike may be appropriate at the September FOMC meeting. Speaking in a Bloomberg Interview, Bullard said, “I was leaning toward 75 and the jobs report was reasonably good last Friday…I wouldn’t let one data point sort of dictate what we are going to do at this meeting. So I am leaning more strongly toward 75 at this point.”
• (Sep 26) – According to Atlanta Fed President Raphael Bostic, while some pain may be necessary as Fed Chairman Jerome Powell has implied, the Fed will try to avoid inflicting a lot of pain. Speaking during CBS’s Face the Nation, Bostic, a nonvoting member, said the central bank will try to avoid "deep, deep pain," in the labor market noting, however, there will probably be some job losses.
• (Sep 28) – San Francisco Fed President Mary Daly highlighted the growing difficulty the Fed will have achieving stable prices, while avoiding a recession. Speaking at a banking event in Singapore, Daly said stopping inflation without a recession would be “a struggle.”
• (Sep 28) – Minneapolis Fed President Kashkari said the Fed must continue to raise rates until core inflation drops. Speaking at WSJ live event, he said, “For me I believe we need to keep tightening policy until we see some compelling evidence that underlying core inflation is actually having peaked and heading on its way down. And then I think we need to sit there and we need to pause and wait and let the tightening work its way through the economy, to see at that point have we done enough.”
• (Sep 28) – Speaking at a policy forum in London, St. Louis Fed President James Bullard said the Fed needs to keep raising rates from a fundamental standpoint as inflation remains elevated and because the central bank’s credibility of instating the Committee’s mandate of stable prices is on the line. “This is a serious problem and we need to be sure we respond to it appropriately…We have increased the policy rate substantially this year and more increases are indicated,” Bullard said.
• (Sep 29) – Speaking to reporters in a conference call, Atlanta Fed President Raphael Bostic backed a further 125bp increase in the target rate by year-end: “The lack of progress thus far has me thinking much more now that we have to get to a moderately restrictive stance. And for me, that is in the 4.25% to 4.5% range for our policy. My preference is that we get there by year end.”
• (Sep 29) – Speaking to reporters, Chicago Fed President Charles Evans mentioned a further rise in rates is necessary to rein in higher price pressures. “We’re at a target range of 3 to 3.25%...That is beginning to move into restrictive territory, but with inflation as high as it is, and getting inflation under control being job one, it’s not nearly restrictive enough,” Evans said.
• (Sep 30) – St. Louis Fed President James Bullard noted the recent volatility in the market is a positive indication that investors have come to grips with the Fed’s intentions to raise rates high enough to quell inflation. Speaking to a virtual forum on emerging markets, Bullard said the markets have "digested" the message on additional rate hikes, which "seems to be the right interpretation."
• (Sep 30) – Speaking at a Cleveland Fed policy conference on inflation, Cleveland Fed President Loretta Mester reiterated the Committee’s commitment to raising rates and reinstating price stability no matter the costs. Mester went on to say that officials are “steadfast” in their mission to raise rates to a level that will be seen as undeniably restrictive. “Real interest rates — judged by the expectations over the next year of inflation — have to be in positive territory and held there for a time. We’re still not even in restricted territory on the funds rate,” Mester said.
• Beige Book (Sep 7)
• The Fed’s latest Beige Book characterized growth as “unchanged” with some districts noting growth was “softening,” while others reported “modest growth.” On the inflation front, the Beige Book noted price levels remained highly elevated, although nine districts reported some degree of moderation in their rate of increase. “Substantial price increases were reported across all Districts, particularly for food, rent, utilities, and hospitality services,” the Beige Book reported.
• September 20-21 FOMC Meeting?
• As expected, the Federal Reserve opted to raise rates 75bps at its September meeting, taking the target range to 3.00% to 3.25%, with a total of 300bps in policy adjustments since March. The September statement, furthermore, was also in line with expectations with the Committee reiterating its focus on inflation as prices remain elevated, warranting additional policy adjustments going forward. “The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3 to 3-1/4 percent and anticipates that ongoing increases in the target range will be appropriate,” the September statement read. The decision was unanimous. Along with the policy decision, the Fed also released an updated version of the Summary of Economic Projections (SEP). According to the latest June SEP, the Fed was optimistic inflation would retreat markedly with growth modest, but positive in both 2022 and 2023. The Committee additionally anticipated a terminal rate of 3.4% this year and 3.8% sometime in 2023. In the latest September SEP, Fed officials have indicated a potential need to push rates markedly higher than previously anticipated with the benchmark rate rising to 4.4% by the end of the year and further to 4.6% in 2023 before easing to 3.9% in 2024. Coupled with a more aggressive pathway to higher rates, the Fed also underscored the more persistent nature of inflation and the likely more pronounced negative impact taming inflation will have on the domestic economy. According to the September SEP, forecasts for 2022 growth were reduced from 1.7% to 0.2% this year and from 1.7% to 1.2% in 2023, with inflation expectations revised higher from 5.2% to 5.4% this year and from 2.6% to 2.8% next year. The updated forecasts also show a more precipitous rise in the unemployment rate to 4.4% by the end of next year versus a previous estimate of 3.9%, again a reflection of the more intensely negative impact anticipated from a more accelerated pathway to higher rates.

Domestic News and Activity?

• Politics and the Biden Administration
• (Sep 15) – After a night of late negotiations, railway workers and companies came to a tentative agreement that included a 24% wage increase during the five-year period from 2020 through 2024. The agreement averted a strike that could have disrupted shipments across the country. According to Bloomberg News, roughly 40% of long-haul trade is transported by rail, suggesting idle trains could have cost the U.S. economy billions per day. President Biden immediately applauded the agreement. In a statement released by the White House, Biden said, “The tentative agreement reached tonight is an important win for our economy and the American people.”
• (Sep 26) – According to the latest September report from the Organization for Economic Cooperation and Development (OECD), global growth will expectedly remain lackluster for some time, expanding just 2.2% in 2023, down from a previous forecast of 2.8%. Europe will most likely be the hardest hit amid the “dual shock” of the ongoing conflict in Ukraine and the resulting energy crisis, which is likely to intensify towards year-end. In the U.S., contrary to the Federal Reserve’s optimistic outlook for 1.2% GDP next year, the OECD report predicts growth in the U.S. will be a minimal 0.5% in 2023.

International News and Activity?

• Europe
• (Sep 8) – The European Central Bank (ECB) announced a 75bp hike, the largest one-time increase in the bank’s near quarter of a century history, taking the key lending rate from 0.0% to 0.75%, an eleven-year high and marking the second rate hike in the past three months. With inflation pushing up 9.1% as of August, the highest on record, despite mounting evidence of weakness, the European Central Bank is struggling to rein in price pressures. Following the ECB’s rate decision, ECB President Christine Lagarde held a press conference. Lagarde was clear the central bank is – like the Fed – committed to taming inflationary pressures, while acknowledging the underlying and emerging weakness in the region.?
• (Sep 20) – Sweden’s central bank, the Riksbank, surprised the market with a 100bp increase, the third rate increase since the pandemic with strong language suggesting additional increases were on the horizon.
• (Sep 22) – The Swiss National Bank (SNB) ended nearly eight years of negative rates with a 75bp hike, taking the key lending rate from -0.25% to 0.50%. Additionally, the?Norges Bank raised by 50bps, lifting its benchmark rate from 1.75% to 2.25%, however, the central bank could be nearing an end to policy adjustment
• ?The U.K.

o??(Sep 22) – the Bank of England (BOE) delivered a sizable increase of 50bps, taking its key lending rate from 1.75% to 2.25% with some officials openly pushing for more and potentially further action at the next meeting on November 3.

o??(Sep 27) – The prospect of an emergency rate hike by the BOE was diminished with comments from policy officials taking a between meeting move off the table. In a statement, Bank of England Governor Andrew Bailey said the Monetary Policy Committee “will not hesitate to change interest rates by as much as needed to return inflation to the 2% target sustainably in the medium term, in line with its remit.” However, Bailey stopped short of announcing an emergency meeting of policy makers.

o??(Sep 28) – According to the International Monetary Fund (IMF), the U.K. government should reconsider the massive tax cuts announced by the new PM Liz Truss and her administration, warning it could do “permanent damage to the public finances.” In a rare statement released by the IMF, officials said fiscal stimulus is “inappropriate” given the level of inflation in the U.K. economy and could pose insurmountable challenges to the central bank. “Given elevated inflation pressures in many countries, including the U.K., we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy,” a spokesperson for the Washington-based IMF said. “Furthermore, the nature of the UK measures will likely increase inequality.”

o??(Sep 28) – With the “dysfunction” growing in the overseas market as a result of investors reacting to fiscal policy and the latest Federal Reserve policy decisions, the Bank of England announced plans to buy long-dated gilts and delay planned sales of debt in an effort to stabilize markets. According to a statement, the BOE will carry out temporary purchases, citing "a material risk" to financial stability that would lead to "an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy."

·??????Canada

o??(Sep 7) – The Bank of Canada (BOC) announced its fourth outsized rate hike in a row, raising the key lending rate 75bps to 3.25%. Recall, Canada was among the first of the developed central banks to increase borrowing costs in the aftermath of the Covid-19 crisis, raising its key lending rate from 0.25% to 0.50% on March 2 before the Fed’s first increase on March 16.?Since the initial increase, the BOC has hiked rates three more times, taking the policy rate to 3.25%. Additionally, in April, the Bank of Canada ended the reinvestment phase of its asset purchase program and officially began quantitative tightening.

·??????Russia

o??(Sep 23) – Russian President Vladimir Putin announced a “partial mobilization” of as many as 300k troops. In response to the escalation of tensions, European Union member states considered an eighth round of sanctions. According to reports, officials were considering a number of different components from removing more Russian banks from the SWIFT international payment system to banning luxury goods and diamond imports. Consensus, however, had yet to be reached among the 27-member countries and may prove as difficult to reach a broad-based agreement as it was last time. Recall in June, members attempted to pass a sizable sanctions package which led to “infighting” within the bloc.

-Lindsey Piegza, Ph.D., Chief Economist