September Macro Recap

The annual inflation rate in the US eased for a second straight month to 8.3% in August of 2022, the lowest in 4 months, from 8.5% in July but above market forecasts of 8.1%. While year-over-year inflation in August decreased slightly, headline inflation rose 0.1% and core inflation rose 0.6% over the previous month. FYI - headline inflation, commonly known as the CPI, includes more volatile food and energy price data, whereas the core inflation index excludes it. These August data points ended up spooking the market given inflation is turning to be more sticky and decreasing at a lower pace than expected which might stay with us longer.

Given the inflation figures, the Fed continued to increase rates in September by 0.75% in an effort to quash the persistent inflation. The current federal funds rate as of September ranges between 3% and 3.25%. However, what scared investors is the FEDs outlook to increase rates to a 4.4%-4.6% target by year end, meaning expectations of an additional 0.75% rate increase in November and a 0.50% rate increase in December.

Economists estimate that bringing the Fed’s preferred inflation measure, the personal-consumption expenditure, or PCE, back down to 2%, would cost 5.3 million jobs and push the unemployment rate up to 6.7%.