13.09.2022
U.S. inflation falls for 2nd straight month on lower gas costs

Sharply lower prices for gas and cheaper used cars slowed U.S. inflation in August for a second straight month, though many other items rose in price, indicating that inflation remains a heavy burden for American households.

Consumer prices surged 8.3% in August compared with a year earlier, the government said Tuesday. Though still painfully high, that was down from an 8.5% jump in July and a four-decade high of 9.1% in June. On a monthly basis, prices rose 0.1%, after a flat reading in July.

Excluding the volatile food and energy categories, so-called core prices jumped 0.6% from July to August, higher than many economists had expected and a sign of inflation’s persistence.

Despite the signs of moderating price increases, inflation remains far higher than many Americans have ever experienced and is keeping pressure on the Federal Reserve, the agency tasked with keeping prices stable. The Fed is expected to announce another big increase in its benchmark interest rate next week, which will lead to higher costs for many consumer and business loans.

Inflation has escalated families’ grocery bills, rents and utility costs, among other expenses, inflicting hardships on many households and deepening gloom about the economy despite strong job growth and low unemployment.

Even if inflation peaks, economists expect it could take two years or more to fall back to something close to the Fed’s annual 2% target. The cost of rental apartments and other services, such as health care, are likely to keep rising in the months ahead.

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  • 3 дня, 23 часа назад 21.09.2022Economy
    News The Buckshee

    The Federal Reserve is poised to deploy another supersized interest rate hike to fight the sharpest price surge in 40 years, a move that has drawn remarkably little political pushback despite rising market anxiety just weeks before an election.

    That could change, with more and more voices from Washington to Wall Street warning that the central bank might end up doing serious damage to the economy.

    The World Bank last week raised the specter of a global recession, driven by higher rates in the U.S. and abroad. Investors are increasingly worried that disruption in the U.S. government debt market could worsen as the Fed raises borrowing costs. The housing and stock markets are reeling. And some executives like Tesla CEO Elon Musk even say the economy is in danger of entering a period of deflation.

    Fed Chair Jerome Powell has pledged to do whatever it takes to curb inflation, a point that he’ll punctuate on Wednesday when the central bank raises interest rates for the fifth time this year. The job seems nowhere near done, with the costs of everything from health care to rents soaring even as gas prices fall. But the Fed’s policies take time to feed through the economy, meaning the central bank could end up depressing economic activity more than necessary before realizing it, given the sheer speed at which it’s jacking up rates — the fastest pace in three decades. “There’s the old expression that sometimes they’ll tighten until something breaks,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “It’s a legitimate concern at this point.”

    The predicament creates an exceptional level of economic uncertainty for the country, for President Joe Biden’s administration, and for the next election cycle leading into 2024.

    Economists say the range of outcomes for the second half of Biden’s presidency is astoundingly broad — it could see a severe economic downturn or simply a period of sluggish growth. Prices might continue to rise at a painfully rapid clip, or they could begin to drop.

    Also at stake is the central bank’s own credibility as the nation’s chief inflation-fighting authority. Powell has stressed the dangers of backing off too early, fearing that doing so could make inflation even harder to fight long-term as consumers and businesses build ever-rising prices into their budgeting. So far, he has gotten strong political support, including from Biden and most Republicans.

    But many Fed watchers say some of the root causes of inflation lie outside the central bank’s control, like the U.S. labor shortage, global supply chain snags and Russia’s war on Ukraine. They’re raising concern that higher rates could crimp growth without leading to much relief on prices — a point that Sen. Elizabeth Warren (D-Mass.) has hammered away at Powell for months.

    “We just don’t know if the Fed rate hikes are going to be successful,” said Nancy Davis, founder of hedge fund Quadratic Capital Management. She argued that markets are “really complacent” in expecting that the central bank will tame inflation.

    Central banks around the world are also ramping up borrowing costs to battle inflation, which could have an intense cumulative effect on global growth. That calls for caution on the part of the Fed, said Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics.

    Obstfeld said aggressive rate-raising moves by the European Central Bank should give the Fed pause because higher rates in the U.S. will further squeeze a European economy already beleaguered by the war in Ukraine.

    “What I would be saying is, ‘Gee, they’re heading into a recession already,’” Obstfeld said. “That would be a reason at the Fed to say, let’s take it a little easier.”

    Recent consumer surveys also show that Americans are lowering their expectations for future inflation, a psychological shift that could provide a tailwind for the central bank but could also be an argument for slowing down its rate hikes to gauge their impact.

    Markets are expecting rates to rise nearly 2 more percentage points by the end of the year. That would bring them to a level that is more normal by historical standards — the Fed’s main borrowing rate would sit above 4 percent — but is staggeringly high compared to the near-zero rates that have mostly prevailed for more than a decade.

    World Bank researchers in a new paper argued that if central banks around the world end up having to raise interest rates more than expected, it could trigger steep drops in asset prices, “while exacerbating already heightened macroeconomic vulnerabilities.” And because central banks are focused on fighting inflation, they won’t be able to lower borrowing costs, as they usually do to cushion economies against downturns.

    They emphasized the importance of central banks communicating about where they plan to go to help markets adjust in an orderly way.

    Sonders said the best-case scenario for the U.S. is a “rolling recession,” where different parts of the economy contract at different times but overall growth never actually decreases.

    “Much of the goods side of the economy is already in recession, but you’ve got that more recent strength in the services side,” she said. “That’s what’s particularly unique about this cycle.”

    She also said she expected the Fed to raise rates higher and hold them there even if economic activity drops significantly, until the inflation battle is won.

    “The only condition under which the Fed has the green light to cut rates is because we’re in a pretty ugly recession and significant deterioration in the labor market,” Sonders said.

    Cathie Wood, CEO of Ark Invest, is among the prominent voices arguing that the Fed needs to ease off for fear of causing deflation, a general decline in prices that can be difficult to counteract. Policymakers aim for mild inflation because when prices fall, it can decrease investment and spending, spurring joblessness.

    For the Fed to have “the same resolve at this point, we think is going to prove a mistake,” she said in a recent webinar. Wood’s firm invests heavily in technology stocks that are especially hurt by rising rates because they rely more on regular infusions of cash.

    Meanwhile, the Fed is also shrinking its bond holdings, a process that will further raise borrowing costs because it pulls cash out of the economy and removes a key buyer of U.S. government debt and mortgage-backed securities.

    Investors have become increasingly nervous about what that might mean for the Treasury markets where the U.S. government borrows money. Those markets have been showing signs of strain, with prices jumping around unpredictably and larger gaps between how much sellers want to get and what buyers are offering to pay.

    Darrell Duffie, a finance professor at Stanford’s Graduate School of Business, said these issues are caused by larger structural problems in the market. But he said the Fed’s actions mean the market is all the more vulnerable to unpredictable events.

    “The Fed shouldn’t have to change its monetary policy actions in order to accommodate frailties in the Treasury market structure,” he said. “But if market reform doesn’t proceed quickly enough, there could be a point at which the Fed has to rethink [its actions] in the event the market is not functioning properly.”

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  • 3 недели, 1 день назад 02.09.2022Economy
    G-7 announces price cap deal on Russian oil in win for Yellen

    Finance ministers from the Group of Seven major economies announced an agreement Friday to impose a cap on the price importers pay for Russian oil, in a bid to shrink a key source of revenue the Kremlin uses to finance its war in Ukraine.

    “We seek to establish a broad coalition in order to maximize effectiveness and urge all countries that still seek to import Russian oil and petroleum products to commit to doing so only at prices at or below the price cap,” the group said in a statement.

    The agreement, which still faces hurdles before it can be implemented, marks a win for U.S. Treasury Secretary Janet Yellen, a key advocate of the proposal who has helped build global support for the idea.

    Yellen said the price cap would prove a powerful tool to fight inflation and deliver “a major blow for Russia’s finances.”

    “By committing to finalize and implement a price cap on Russian oil, today the G-7 took a critical step forward in achieving our dual goals of putting downward pressure on global energy prices while denying [President Vladimir] Putin revenue to fund his brutal war in Ukraine,” she said in a statement.

    Several elements of the plan remain unclear, however, including how many countries will ultimately sign on, the price at which the cap will be set and how Putin will respond.

    The goal is to align the price cap’s effective date with new European sanctions set to take effect on Dec. 5 on shipping services for Russian oil exports. Treasury officials are working with their international counterparts to complete legal frameworks for the cap in each jurisdiction, which are expected to be unveiled in mid-October.

    Russian Central Bank Governor Elvira Nabiullina has said Russia will refuse to sell to countries that impose a cap.

    The G-7 in its statement committed to working urgently to finalize the measure in each of its jurisdictions and acknowledged that implementation in the European Union will require unanimous agreement among all 27 member states.

    “The price cap is specifically designed to reduce Russian revenues and Russia´s ability to fund its war of aggression whilst limiting the impact of Russia´s war on global energy prices, particularly for low and middle-income countries, by only permitting service providers to continue to do business related to Russian seaborne oil and petroleum products sold at or below the price cap,” the statement read.

    The G-7 consists of the U.S., the U.K., Germany, France, Italy, Canada and Japan. The EU itself also belongs to the group.

    Some in the oil industry have warned the plan is overly complicated and will be difficult to implement, while economic and energy policy experts say it could have unintended consequences and push up the price of oil.

    Yellen has said the alternative would be worse — if the European sanctions take effect without a price cap exemption, it could lead to a catastrophic supply shock that sends energy prices soaring and triggers a global recession, she has said.

    The G-7 finance ministers, in their statement Friday, said implementation would be based on “a recordkeeping and attestation model” covering all contracts, and said they “would aim to limit possibilities for circumventing the cap while at the same time minimizing the administrative burden for market participants.”

    The initial cap will be set at a level based on a range of technical inputs, the group said, and will be decided by the full coalition in advance of the implementation date.

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  • 3 недели, 1 день назад 02.09.2022Economy
    Powell’s warning of ‘pain’ could bring pain on the Fed itself

    Federal Reserve Chair Jerome Powell is entering perilous new territory as he warns the American people of coming economic pain from sharply higher interest rates, with signs of political frustration already surfacing.

    With inflation at more than a four-decade high, Powell and other Fed officials in the past week have torpedoed the hopes of many investors, lawmakers and labor advocates that the central bank will be able to achieve a “soft landing” — a slowdown in growth that curbs spiking prices but avoids a damaging recession.

    The more pain there is, the more lawmakers are likely to join Sen. Elizabeth Warren (D-Mass.) in blasting the central bank, with progressive groups ramping up their criticism, saying the Fed’s actions will potentially lead to millions of job losses.

    “Jerome Powell’s rhetoric is dangerous, and a Fed-manufactured recession is not inevitable — it’s a policy choice,” Warren told POLITICO. “Some might find this controversial, but higher unemployment should not be the economic policy of the United States, particularly when the Fed’s aggressive interest rate hikes are ill-suited to address inflated food and energy prices from Putin’s war in Ukraine, supply chain bottlenecks, and corporate price gouging.”

    The stock market tumbled on concern that higher interest rates will spark a recession after Powell said last week that “some pain” is ahead for the American people. The government on Friday will offer another indication of whether the hurt has already begun when it reports on August unemployment. Analysts are still optimistic, predicting a net gain of 300,000 jobs for the month.

    “We must keep at it until the job is done,” Powell said at the Fed’s annual conference in Jackson Hole, Wyoming.

    A full-blown downturn could end a period of remarkable growth for the labor market over the past year, which has seen the jobless rate fall back to a more than 50-year low of 3.5 percent and wages grow at a rapid clip — though not enough to keep up with inflation. Even a mild economic slump could mean many people will lose their jobs, while others could see incomes freeze or even lower pay.

    “It’s going to get bumpy — and any downtick in the labor market has typically brought the wrath of Congress,” said Mark Spindel, chief investment officer at MBB Capital Partners who wrote a book on the relationship between the Fed and lawmakers.

    Still, he said: “The high inflation wasn’t helping [Powell] out politically either.”

    As the central bank continues its rate-hike campaign, Powell has made clear that the bar for reversing course and lowering borrowing costs is high. The Fed — haunted by memories of the chaotic inflation of the 1970s — doesn’t want to prematurely declare victory on cooling price spikes, only for them to resurface and require even more severe moves. That means that, even if the policymakers eventually stop raising rates, they could leave them at levels that bite into growth for some time.

    Nela Richardson, chief economist at payroll processing firm ADP, said the Fed is willing to tolerate an economic slump if that’s what it takes, but “I don’t think it’s a goal.”

    “It’s not like, ‘Let’s bring about a recession,’” she said, “because that could backfire into stagflation,” when high inflation is accompanied by stagnant growth.

    The central bank can’t do anything about the supply issues — worker shortages, production and shipping delays, the war in Ukraine — that are pushing up costs. But Fed officials stress that there’s still a role for them to play in slowing spending and investment so demand comes into better balance with supply.

    “That’s going to be messy, is what they’re telling us,” Richardson said.

    It’s unclear how resilient the U.S. economy will be to further rate increases. Consumers have continued to buy goods and services at a brisk pace, yet parts of the economy have already slowed significantly in the face of reduced government spending and higher interest rates and prices.

    One technical definition for a recession — two consecutive quarters of negative GDP growth — has already been met in the first half of the year, although many economists expect that preliminary data to be updated into positive territory as more information becomes available.

    The lessons of the 1970s loom large, when the Fed alternately raised and lowered rates, stymieing its efforts to effectively bring down soaring inflation. That meant Paul Volcker, appointed by President Jimmy Carter to head the central bank in 1979, had to hike rates into double-digit territory before price spikes relented, leading to multiple recessions.

    “I don’t imagine Powell is wandering the Eccles building muttering, ‘I’m Paul Volcker,’” said Guy LeBas, chief fixed income strategist at financial firm Janney Montgomery Scott, referring to the central bank’s headquarters. But he cited a line from Powell’s speech: “Reducing inflation is likely to require a sustained period of below-trend growth.”

    “That’s language for, ‘We are causing a recession to reduce inflation,’” LeBas said.

    Former Fed Vice Chair Don Kohn, now a senior fellow at the Brookings Institution, said he didn’t think the central bank was giving up yet on being able to avoid a contraction.

    “The important message was, ‘We’re not going to back off too early,’” he said. “They understand there’s some amount of pain coming. No one knows how much.”

    That’s where the danger lies for the central bank.

    “The core political risk for the Fed is that the public — markets, politicians, households, businesses — could lose confidence in the Fed’s ability to meet its congressional mandate: low inflation and a robust job market,” said Sarah Binder, a professor at George Washington University and Spindel’s co-author. “For the Powell Fed today, that political risk is growing. The Fed needs to convince the public that central bankers will do ‘whatever it takes’ to curtail inflation … But that means the Fed needs to have the political fortitude to keep raising rates even if and when it puts people out of work.”

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  • 3 недели, 3 дня назад 31.08.2022Economy
    News The Buckshee

    The Federal Reserve’s aggressive efforts to ratchet up interest rates have spurred concerns that the U.S. economy is heading toward a recession. But one pivotal industry may already be there.

    The housing market has cooled so much as the Fed withdraws its support for the economy that some analysts say it may be in a slump. Mortgage rates nearly doubled in the first half of the year. The Fitch ratings service has raised the specter of a “severe” downturn that could send home prices tumbling. Housing starts plunged in July. Builder confidence has declined the most since the 2008 meltdown, and new home sales last month were down 30 percent from the previous year, Census data shows.

    “I think we’re in a housing recession right now,” said Robert Dietz, chief economist at the National Association of Home Builders. “After a year and a half of post-Covid housing strength, this isn’t just a retrenchment to a more normalized trend — this is definitely a weakening.”

    That’s a big deal because spending on housing accounts for as much as 18 percent of GDP, and the sector typically leads recoveries. So, even as the Biden administration touts the strength of the labor market and consumer spending holds up, a prolonged downturn in the housing market could deepen any potential recession on the horizon for the U.S. economy.

    As the primary way most Americans build wealth, homeownership has long played a central role in the economy. It took on additional weight during the pandemic, buoying the turbulent times as white-collar Americans stoked demand by seeking more spacious homes amid lockdowns and work-from-home policies. Record-low mortgage rates encouraged the buying surge, and homeowners rushed to refinance loans, giving them a steadier financial foothold to weather Covid-driven volatility.

    While home prices declined last month for the first time in three years, they are still up from a year ago thanks to skyrocketing growth over the course of the pandemic. But the rise in mortgage rates, driven by the Fed’s rate hikes, priced many would-be buyers out of the market.

    In a note Tuesday warning that the housing market has “further to fall,” Goldman Sachs economists predicted that home price growth would “slow sharply in the next couple quarters” and fall to 0 percent in 2023.

    The deteriorating market has pushed sellers to slash their asking prices. More than a fifth of the homes for sale saw price drops in July, according to Redfin, the highest level the firm has recorded since it started tracking the data in 2012.

    “House prices were elevated going into this monetary policy change, and this is a big interest rate shock we’re seeing,” said Brian Coulton, chief economist at Fitch Ratings. “We’re heading into a monetary-tightening-driven slowdown, and housing is going to be affected by that more than the economy overall.”

    No one’s really sure how bad it will get, Coulton said, as the Fed also reduces the portfolio of assets it bought to boost the market, in a bid to tackle inflation.

    The central bank had pumped nearly $3 trillion into the mortgage market with the purchases of mortgage-backed securities in a process known as “quantitative easing.” It’s now allowing those securities to mature and fall off its balance sheet, and it has left the door open to selling them as a way to shrink its portfolio more quickly.

    “Nobody knows how much real estate prices — not just in the U.S., but globally — were increased by quantitative easing,” Coulton said. “But I think there’s a pretty strong consensus that QE did boost asset prices, and real estate prices in particular, and now we’re going into the opposite of that, and nobody has a particularly good model of what that will look like.”

    It won’t be pretty, according to Douglas Holtz-Eakin, an economist and president of the right-leaning American Action Forum who recently testified before the Senate Banking Committee on the market.

    “Housing is going to be disproportionately bearing the brunt of this disinflation, and the next couple of years are going to be tough,” Holtz-Eakin, who formerly headed the Congressional Budget Office, said in an interview.

    But it could be worse, according to Jeff Tucker, senior economist at Zillow. Tucker pointed to inventory growth leveling off in recent weeks as sellers start to reconsider listing their homes. New listings fell 2.8 percent in July, according to Realtor.com data.

    “That says to me that we’re not on a runaway slowdown heading for a crash,” Tucker said. “There’s this kind of supply pullback following the demand pullback of earlier this summer and I think that’s kind of buffering the market from seeing prices fall substantially.”

    What happens next depends on whether the Fed gets a handle on price growth — and if doing so tips the broader economy into a recession. Fed Chair Jay Powell on Friday warned that the campaign to rein in inflation would cause “some pain [for] households and businesses.”

    The strength of the housing recovery is “really going to depend on the trajectory of the economy,” said Redfin chief economist Daryl Fairweather.

    Once inflation abates, she said, mortgage rates will decline and housing demand will return — there are still just not enough homes for people who want them, so demand is resilient. The supply of existing homes for sale has increased this year but remains below pre-pandemic levels.

    “Things are going to turn around probably sometime next year, but I’m not sure how positive a turnaround it will be — if it’s going to come back full steam or it’s going to be a lackluster recovery because of the economic backdrop,” Fairweather said.

    “It was just a couple months ago the housing market was in danger of overheating,” she added. “This is definitely a necessary evil in a way.”

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  • 4 недели, 1 день назад 26.08.2022Economy
    Fed’s Powell vows to battle high inflation to avoid ‘far greater pain’

    JACKSON HOLE, Wyo. — Federal Reserve Chair Jerome Powell on Friday vowed that he won’t back down in the fight against high inflation, saying the central bank will do what it takes to rein in prices.

    In a closely watched speech at the Fed’s annual conference in Wyoming, Powell foreshadowed not only further interest rate increases but also warned that rates might need to stay high for some time to ensure that price spikes do not persist.

    “We must keep at it until the job is done,” he said. “Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance.”

    The Fed’s campaign to curb the highest inflation in four decades runs the risk of triggering a recession in the world’s largest economy. Growth has already slowed — GDP contracted in the first two quarters of the year — even as inflation has shown signs of cooling off.

    Powell’s words are a stark about-face from his remarks at the same conference last year, when he said elevated inflation was likely to prove temporary. Now, his message is intended not only to warn the American people that economic pain is ahead but also to deter financial markets from expecting the Fed to reverse course next year.

    Before his remarks, many investors expected the central bank to begin lowering borrowing costs later next year as a possible recession looms. That had led market rates to fall and stock prices to rise from their June depths — the exact opposite of what the central bank wants to see as it aims to slow spending and investment.

    But the Fed chief said the battle against inflation would likely mean “a sustained period” of slow growth, with a level of interest rates that keeps the economy on a tight leash. He also said there would “very likely” be some pain in the job market, which could mean a jump in the unemployment rate — that is, millions of job losses.

    “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” he said, arguing that letting inflation fester would only cause additional hardship in the future because the Fed would have to act more aggressively. “History shows that the employment costs of bringing down inflation are likely to increase with delay.”

    The economy is “clearly slowing,” though it still shows “strong underlying momentum,” he said.

    As for inflation itself, there are some early signs it is easing. The Personal Consumption Expenditures index — the Fed’s preferred inflation measure — showed prices actually fell slightly from June to July, driven in part by lower gas prices, according to data released Friday. But they’re still up 6.3 percent from a year before.

    “While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what the committee will need to see before we are confident that inflation is moving down,” Powell said.

    He put responsibility for fighting price spikes firmly in the court of the Fed, although inflation has also been fed by factors that it can’t control, such as supply chain disruptions and Russia’s invasion of Ukraine.

    “It is true that the current high inflation is a global phenomenon, and that many economies around the world face inflation as high or higher than seen here in the United States,” Powell said. “None of this diminishes the Federal Reserve’s responsibility to carry out our assigned task of achieving price stability. There is clearly a job to do in moderating demand to better align with supply. We are committed to doing that job.”

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  • 1 месяц назад 25.08.2022Economy
    Powell hits Wyoming to redefine Fed’s great inflation debate

    Federal Reserve Chair Jerome Powell, who last year reassured Americans that high inflation would likely be temporary, is expected to offer a darker message this week in the most closely watched speech of his tenure: The fight against spiking prices is far from over.

    Powell’s optimistic words at the annual Jackson Hole conference in 2021 were followed by the biggest sustained surge in prices that the U.S. has seen in four decades. Since then, he has shifted gears and sharply stressed the Fed’s commitment to kill high inflation by jacking up interest rates.

    But many investors think the Fed might blink before then and are already expecting the central bank to begin lowering borrowing costs later next year as a possible recession looms. That has led market rates to fall and stock prices to rise from their June depths — the exact opposite of what the central bank wants to see as it aims to slow spending and investment.

    Now, as he returns to Jackson Hole in Wyoming, Powell needs to convince markets he means business when he addresses the landmark conference of economists on Friday. If he can’t, it could undermine the Fed’s effort to curb the price spikes, which have rocked the economy, dragged consumer sentiment to record lows, and damaged President Joe Biden’s approval ratings.

    “There are no easy answers,” said Torsten Slok, chief economist at private equity firm Apollo Global Management. “The Fed is very worried about sending the right signal.”

    Stocks have been mixed in recent days in anticipation of Powell’s tough talk, but if his tone is softer than they expect, the upward trend is likely to return.

    Investors always pay attention to the Fed chief’s remarks at the conference, which has served as the venue for crucial policy changes in the past. But Powell’s comments hold special weight this year as the Fed considers how high to push interest rates to bring inflation down.

    The Fed’s quest to communicate with investors has been fraught over the past year. Central bank officials first had to grasp that inflation would last longer than they initially thought before launching the most aggressive rate hikes in 30 years. And the pandemic-era economy has proved especially unpredictable, leading Powell to back away almost entirely from his practice of providing long-term guidance on what the central bank might do.

    Both high inflation and confusion have opened the institution up to criticism.

    Mohamed El-Erian, chief economic adviser at Allianz, faulted the central bank for failing to anticipate how persistent inflation would be, not acting sooner to raise rates and providing rosy forecasts on where the economy might be headed.

    “Chair Powell needs to reset market rates expectations, avoid the mishaps of last year, and start to repair the damaged credibility of the institution,” he said.

    To be certain, even the signals being sent by investors aren’t completely clear: Market expectations for rate cuts next year could reflect either pessimism or optimism. Investors might be expecting the Fed to overdo it and cause a full-blown recession, leading it to reverse course on rates. Or they could be anticipating that the central bank will succeed in cooling prices while avoiding a recession altogether.

    Either way, markets pricing in an about-face by the Fed could cause the opposite to happen: The central bank might have to raise rates even higher to counteract their exuberance, making the path to lower inflation that much more painful for the economy.

    “I would like to hear him double down on their commitment to bring inflation under control because that obviously is the centerpiece of everything they’re doing,” said Omair Sharif, founder of the independent research firm Inflation Insights.

    Still, some Democratic policymakers in Washington want to hear at least a kernel of a plan to begin easing off rate hikes. Sen. Elizabeth Warren (D-Mass.) argues that the Fed can’t do much about many of the key drivers of high inflation anyway — including supply chain disruptions and higher oil prices — so it should avoid squeezing the economy.

    At the time of the Fed’s latest rate increase in July, central bank policymakers agreed that more tightening would probably be necessary to cool rising prices but expected at some point to slow down and take stock of how much their moves have eased inflation, according to the minutes from that meeting. Many of them also cited the risk that the central bank could go too far.

    That was at the height of fears that the economy might already be entering a recession. Since then, a raft of data has shown strength in both consumer spending and the job market, which are the main sources of economic health.

    “I do think we will hear [Powell] walk back a bit on the pessimism in the minutes about the risk of a recession,” said Adam Ozimek, chief economist at the public policy research firm Economic Innovation Group. “The data is not suggesting anything like a recession.”

    Ozimek argued for a more optimistic take on the path of the economy, saying jobs are being added at a rapid clip and that is helping output — the supply of goods and services — better match up with demand, which should dampen the need for continually higher prices.

    But, he said, the more the central bank succeeds in its quest to slow the economy, the harder it will be to tell whether the Fed has already gone too far.

    Apollo’s Slok said the biggest long-term question on how quickly the Fed will be able to tame inflation is what’s driving it in the first place.

    “We and they don’t really know very well why inflation went up, and therefore how quick it will come down,” he said. He also noted that the Fed doesn’t know exactly how high rates need to go before they really start to bite into growth.

    Joseph Wang, a former senior trader at the New York Fed who now runs a blog, said this is what makes the Fed’s messaging so murky.

    “I can understand why the market is confused,” he said.

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13.09.2022
U.S. inflation falls for 2nd straight month on lower gas costs
Sharply lower prices for gas and cheaper used cars slowed U.S. inflation in August for a second straight month, though…
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02.09.2022
G-7 announces price cap deal on Russian oil in win for Yellen
Finance ministers from the Group of Seven major economies announced an agreement Friday to impose a cap on the price…
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Economy U.S. inflation falls for 2nd straight month on lower gas costs