Evelyn Reynolds

More stories

  • 113 Shares119 Views

    in Economy

    Halloween Shoppers Not Spooked as Economic Slowdown Remains Elusive

    Economists spent much of 2023 warning that a recession could be imminent as the Federal Reserve raised interest rates to the highest level in more than two decades. But for companies like Soergel Orchards in western Pennsylvania, a slowdown is nowhere in sight.“People are buying the decorative things,” said Amy Soergel, manager at the company who explained that gourds and cornstalks were in high demand and that customers were coming out to select pumpkins and apples. “People love to pick — people will pick anything.”Sales are up even though a string of rainy weekends have held back attendance at the farm’s annual fall festival. Demand at the hard cider shop has been solid. And the owners are bracing for a strong season in their store selling Christmas decorations.Soergel’s bustling business is a microcosm of a trend playing out nationwide. Consumer demand has unexpectedly boomed in 2023, defying widespread expectations for a slowdown and helping to fuel strong overall growth. The economy expanded at an eye-popping 4.9 percent annual rate in the third quarter, far faster than the roughly 2 percent pace officials at the Fed think of as its standard growth pace.That is great news for American companies. But it is a also a source of confusion. Why is the economy still growing so quickly more than a year and a half into the Fed’s campaign to slow it down, and how long will the upswing last?Fed officials have lifted interest rates above 5.25 percent, making it more expensive to take out a mortgage, borrow to expand a business or carry a credit card balance. Those moves were meant to trickle out through markets to cool the real economy. Some parts of the economy have felt the squeeze — existing home sales have slowed, for instance. Yet employers continue to hire and families keep spending.Customers were coming to Soergel Orchards to select pumpkins and apples.Ross Mantle for The New York Times“People love to pick — people will pick anything,” a manager said.Ross Mantle for The New York TimesCornstalks and gourds are in high demand at Soergel’s.Ross Mantle for The New York TimesIt is difficult to predict what comes next as the all-important holiday shopping season approaches. A solid job market and cooling inflation could combine to give consumers the wherewithal to keep powering the economy forward. But many companies are being careful not to build up too much inventory or predict too strong a sales outlook, worried that higher borrowing costs could collide with smaller savings piles and the accumulated effects of more than two years of rapid inflation to make Americans thriftier.“Sentiment definitely feels down,” Thomas Barkin, president of the Federal Reserve Bank of Richmond, said during an interview on Oct. 19. “The folks I talk to are still clamping down in preparation for 2024.”What happens with holiday shopping could help shape what the Fed does next.The central bank has been trying to slow growth for a reason: Inflation has been above 2 percent for 30 months now. To get prices under control, policymakers think they need to tamp down demand.The logic is fairly simple. If rapid hiring continues and wage gains prove quick, people who are earning more money are likely to feel confident and keep spending. And if shoppers are eager to buy restaurant dinners, new gadgets and updated wardrobes, it will be easier for companies to protect their profits by raising prices.That is why Fed officials are keeping an eye on how strong consumers and the job market remain as they contemplate what to do next with interest rates. Policymakers are almost sure to leave rates unchanged at their meeting on Nov. 1, and a number of them have suggested that they may be done raising borrowing costs altogether.Soergel’s owners are bracing for a strong season in their store selling Christmas decorations.Ross Mantle for The New York TimesBut top officials have kept alive the possibility of one final quarter-point increase, if economic data were to remain buoyant.“We are attentive to recent data showing the resilience of economic growth and demand for labor,” Jerome H. Powell, the Fed chair, said in a recent speech, adding that continued surprises “could put further progress on inflation at risk and could warrant further tightening of monetary policy.”So far, companies offer a mixed picture on the outlook. Many are suggesting that seasonal shopping is off to a strong start. Halloween spending is expected to climb to a record $12.2 billion, up 15 percent from last year’s record of $10.6 billion, according to the National Retail Federation’s annual survey. The group is expected to release its holiday forecast this week.Walmart reported strong sales during its back-to-school season, which its chief executive noted was a good indicator for how spending would look during Halloween and Christmas.“Typically when back-to-school is strong, it bodes well for what happens with Halloween and Christmas,” Doug McMillon, the Walmart chief, said on an earnings call in August.But some companies are uncertain. The Tractor Supply chief executive, Hal Lawton, said during an earnings call last week that the retailer was stocking up on fall and winter décor — selling, for instance, a skeleton cow that was a “TikTok viral sensation.”But “we acknowledge there is a broader range of estimates for holiday, consumer spending than we’ve seen over the last couple of years,” he added.And some analysts think winter shopping could prove weak. Craig Johnson, founder of the retail consultancy Customer Growth Partners, expects holiday sales to grow at 2.1 percent, the slowest since 2012, he said in a report released Oct. 17.“The fact that people had a good Halloween doesn’t necessarily mean that they’re going to have a good holiday,” Mr. Johnson said. “It’s a different buying mentality and there’s not a carryover — you’re not going to see apparel lines from Halloween extend over into Christmas.”Retailers report that they are carefully watching how much inventory they have headed into the holidays, and a Fed survey of business experiences from around the Fed’s 12 districts referenced the word “slow,” “slower” or “slowing” 69 times.Demand at the on-site hard cider shop has been solid.Ross Mantle for The New York TimesPart of the challenge in forecasting is that consumers seem to be splitting into two groups: Wealthier consumers keep spending even as the bottom tier of shoppers either pull back or look for deals.The department store chain Kohl’s says it is seeing this type of bifurcation play out in its customer base and is adjusting its stores accordingly.Shoppers at the Kohl’s in Ramsey, N.J., were greeted with a range of already-discounted Christmas items like miniature snowmen and ornaments at the front of the store. That design was done on purpose — Kohl’s executives want the section to appeal to deal-hungry shoppers.But in a sign that higher earners could fuel growth, it has also started to stock new category items like decanters, wine glasses and electric corkscrews.“We want to make sure we’ve got the right broad breadth of assortment for the breadth of customer base that we’ve got,” said Nick Jones, Kohl’s chief merchandising and digital officer. “And that’s an element of making sure everything’s got to be great value. But great value doesn’t always mean low price.” More

  • 100 Shares99 Views

    in Economy

    U.A.W. Reaches Tentative Deal With Stellantis, Following Ford

    The United Automobile Workers union announced the deal with Stellantis, the parent of Chrysler, Jeep and Ram. It also expanded its strike against G.M.The United Automobile Workers union announced on Saturday that it had reached a tentative agreement on a new labor contract with Stellantis, the parent company of Chrysler, Jeep and Ram.The agreement came three days after the union and Ford Motor announced a tentative agreement on a new contract. The two deals contain many of the same or similar terms, including a 25 percent general wage increase for U.A.W. members as well as the possibility for cost-of-living wage adjustments if inflation flares.“We have won a record-breaking contract,” the U.A.W. president, Shawn Fain, said in a video posted on Facebook. “We truly believe we got every penny possible out of the company.”Shortly after announcing the tentative agreement with Stellantis, the union expanded its strike against General Motors, calling on workers to walk off the job at the company’s plant in Spring Hill, Tenn. The plant makes sport utility vehicles for G.M.’s Cadillac and GMC divisions.Under the tentative new contract with Stellantis, Mr. Fain said, the company has agreed to reopen a plant in Belvidere, Ill., to produce a midsize pickup truck and to rehire enough workers to staff two shifts of production.The union also won commitments to keep an engine plant in Trenton Mich., open, and to keep and expand a machining plant in Toledo, Ohio. According to the union, these moves will create up to 5,000 new U.A.W. jobs.The union also won the right to strike if the company closes any plant and if it fails to follow through on its promised investment plans, Mr. Fain said.“If the company goes back on their words on any plant, we can strike the hell out of them,” he said.Mr. Fain said Stellantis workers would now return to their jobs.In a statement, Stellantis said, “We look forward to welcoming our 43,000 employees back to work and resuming operations to serve our customers.”The tentative agreement with Stellantis will require approval by a union council that oversees negotiations with the company, and then ratification by U.A.W. members. The council will meet on Thursday, Mr. Fain said.The deal with Stellantis means that only General Motors has not yet reached an agreement with the U.A.W.Erik Gordon, a business professor at the University of Michigan who follows the auto industry, said the new contracts impose higher labor costs on the Detroit manufacturers as they are ramping up production of electric vehicles and are competing with rivals who operate nonunion plants.“The Detroit Three enter a new, dangerous era,” he said. “They have to figure out how to transition to EVs and do it with a cost structure that puts them at a disadvantage with global competitors.”The union’s contracts with the three automakers expired on Sept. 15. Since then, the union has called on more than 45,000 autoworkers at the three companies to walk off the job at factories and at 38 spare-parts warehouses across the country.The most recent escalation of the strike at Stellantis came on Monday when the U.A.W. told workers to go on strike at a Ram plant in Sterling Heights, Mich., that makes the popular 1500 pickup truck. The strike has halted the production of Jeep Wranglers and Jeep Gladiators at a plant in Toledo, Ohio, and 20 Stellantis parts warehouses.For decades, the union has negotiated similar contracts with all three automakers, a method known as pattern bargaining. Like the contract it hammered out with Ford, the tentative Stellantis deal would lift the top U.A.W. wage from $32 an hour to more than $40 over four and a half years. That would allow employees working 40 hours a week to earn about $84,000 a year.Stellantis, G.M. and Ford began negotiating with the U.A.W. in July. The companies have sought to limit increases in labor costs because they already have higher labor costs than automakers like Tesla, Toyota and Honda that operate nonunion plants in the United States.The three large U.S. automakers are also trying to control costs while investing tens of billions of dollars to develop new electric vehicles, build battery plants and retool factories.Stellantis, which is based in Amsterdam, was created in 2021 by the merger of Fiat Chrysler and Peugeot, the French automaker. The company’s North American business, based near Detroit, is its most profitable.Stellantis surprised analysts recently by posting much stronger profits than G.M., which is the largest U.S. automaker by sales. Stellantis earned 11 billion euros ($11.6 billion) in the first half of the year while G.M. made nearly $5 billion.Noam Scheiber More

  • 175 Shares119 Views

    in Economy

    Achieving the ‘American dream?’ A lot of it depends on where you grow up

    Research from economists at Brown University, Harvard University and the U.S. Census Bureau shows that the numerous variables that define neighborhoods all have lasting impacts on children’s future income.
    The findings were presented earlier this year comparing mobility levels around the world at a World Bank conference.
    “We are thought to be the country of the American dream, [where] once you start from the bottom, you move to the top. But that’s just not really what we see,” said one expert.

    Northeast Dallas in Texas is the neighborhood buyers are most interested in, according to a new report.
    Halbergman | Istock | Getty Images

    Where a child grows up in the U.S. is becoming an increasingly critical component toward determining their future economic status.
    Research from economists at Brown University, Harvard University and the U.S. Census Bureau shows that the numerous variables that define neighborhoods — such as the quality of their school districts, poverty rates and conditions that influence social capital in a community — all have lasting impacts on children’s future income. The research’s findings were presented earlier this year comparing mobility levels around the world at a World Bank conference.

    While it may seem obvious that a good neighborhood may translate into better chances for success in adulthood, it also highlights that being immersed in these areas at a young age is important — and that sociological forces, while difficult to quantify, play an important role in economic prospects.
    These insights could help to shift the tide against worsening rates of intergenerational mobility in the U.S. by informing policymakers as to which decisions could be the most influential in shaping upward prospects, according to John Friedman, professor of economics at Brown University and co-director of Opportunity Insights. Given the geographic span of the U.S., intergenerational mobility varies across a national scale. Yet even when focusing on just an intra-city level, mobility can differ widely between neighborhoods across the street from each other, Friedman said.
    Friedman and his colleagues at Opportunity Insights research program created the Opportunity Atlas, which tracks children’s outcomes in adulthood using U.S. Census and tax data. The data shows a child can earn an average of $56,000 as an adult if they grow up in one neighborhood, versus just $33,000 if they grow up in an adjacent area. 

    We are thought to be the country of the American dream, [where] once you start from the bottom, you move to the top. But that’s just not really what we see.

    Kreg Steven Brown
    Director of economic mobility policy at the Washington Center for Equitable Growth

    “It’s not just that exposure to these local places is incredibly important. It seems [that] exposure during childhood is the most important thing,” Friedman said. 
    While moving to a “better” neighborhood can shape their earnings as adults, the age at which a child moves is also critical in realizing these benefits, Friedman found. The older a child is at the time of the move, the lower their projected income at age 35. At age 24, no income gains can be measured from moving to a higher-mobility neighborhood. 

    Although it’s difficult to pinpoint all the various characteristics of high-mobility neighborhoods, these areas hold certain common characteristics. These include lower poverty rates, more stable family structure, greater social capital and better school quality.
    “Policies tend to be more impactful in people’s trajectories when people are kids, but I don’t think there’s a sharp cut-off,” said Friedman. 
    Measures of mobility
    There are two measures of mobility: relative and absolute. The former measures the chances of rising to the top of the country’s income distribution and has remained stable in the U.S. The latter gauges the chances that a child born into poverty rises to a higher standard of living. 
    “We have less [relative] mobility in this country than we do in other developed nations, especially in Europe and developing European countries. And so even though relative mobility haven’t gotten much better, or much worse over time, it is harder to move from the bottom to the top,” said Kreg Steven Brown, director of economic mobility policy at the Washington Center for Equitable Growth. “We are thought to be the country of the American dream, [where] once you start from the bottom, you move to the top. But that’s just not really what we see.”
    In the U.S., there’s 13.1% average probability that a child of parents in the bottom half of the income distribution can make it to the top quartile, according to data from the World Bank. In Denmark, that probability rises to more than 20%. China, South Africa and Morocco also rank higher than the U.S.

    More CNBC coverage on U.S. economy

    Absolute mobility across generations has been in continuous decline in the U.S. since 1980, according to Opportunity Insights. Concurrently, economic inequality has risen over this period. While slowing economic growth compared to developing economies can be cited as a factor, the American economy is becoming relatively immobile compared to its developed-economy peers. 
    The “Great Gatsby Curve” demonstrates the correlation between income inequality and intergenerational earnings “stickiness.” Higher levels of income elasticity correlate to less upward mobility.
    The curve shows that, compared to other developed nations such as Germany, Canada, Japan, France and Scandinavian countries, not only is wealth much more concentrated amongst a small group in the U.S. — there is also less upward mobility.
    Possibilities from education
    Inequality and mobility remain tricky subjects for economists to measure. Collecting data sets that span over a generation is difficult, and with so many social factors at force — racial segregation, gender, education, household structure, environment — identifying causation, correlation and confounding variables in a study continue to pose challenges.
    “It’s really hard to know what works, because we don’t really have the time to wait a generation to see if [a] particular intervention designed in [a] way actually made the change you want to see,” said Brown.
    However, education has been underscored as one of the greater openers toward greater mobility.
    “One of the biggest equalizers, or mobility-enhancing policies, that you can do is to you provide good-quality education without a burden of debt,” said Juan Palomino, a research scholar at Universidad Complutense de Madrid.
    Education also stands out because of all the pre-existing policy applications that can directly improve quality and resource allocation relative to other factors, Friedman added. “It’s a policy area that’s very impactful, and there’s also a lot of policy levers that one could pull that would increase, kids’ long-term outcomes.”
    The U.S. only ranks behind England for having the world’s highest university tuition fees, according to data from the OECD. Tuition and fees have also more than doubled over the last 20 years and outstanding student loans total $1.75 trillion, as of the third quarter of 2021.
    Friedman noted that while improvements could be made to the U.S. financial aid system. Data on aid awards from the Susan Thompson Buffett Foundation given to Nebraska high school graduates showed only about an 8% increase, from a base of 62%, in the fraction of people who went to a four-year college.
    Notably, the Biden Administration’s student loan forgiveness plan was struck down by the Supreme Court in June, denying millions of borrowers the chance to have their debts reduced.
    “College is much more expensive than it used to be, but it remains [about] the single best investment most people can make,” said Friedman. More

  • 113 Shares189 Views

    in Economy

    Consumers Kept Spending in September, as Inflation Held Steady

    Overall inflation stayed at 3.4 percent in September, down from a peak of around 7 percent.American consumers spent at a robust clip last month, fresh data showed, as the economy continued to chug along even after more than a year and a half of Federal Reserve interest rates increases.The Fed’s policy moves have been intended to slow demand in order to tamp down inflation. Price increases have been slowing down: Friday’s Personal Consumption Expenditures report also showed that overall inflation held steady at 3.4 percent in September.That was in line with what economists had expected, and is down from a peak of 7.1 percent in the summer of 2022. And after stripping out volatile food and fuel for a clearer sense of the underlying inflation trend, a closely-watched core inflation measure eased slightly on an annual basis.Still, Fed officials aim for 2 percent inflation, so the current pace is still much faster than their goal.The question confronting policymakers now is whether inflation can slow the rest of the way at a time when consumer spending remains so strong. Businesses may find that they can charge more if shoppers remain willing to open their wallets. Friday’s report showed that consumer spending climbed 0.7 percent from the previous month, and 0.4 percent after adjusting for inflation. Both numbers exceeded economist forecasts.The strong spending figures are likely not enough to spur Fed officials to react immediately: Policymakers are widely expected to leave interest rates unchanged at their meeting next week, which wraps up on Nov. 1. But such solid momentum could keep them wary if it persists.“You see inflation still generally trending in the right direction, so I think they’re willing to look past this,” said Carl Riccadonna, chief U.S. economist at BNP Paribas. “If this continues for multiple quarters, then I think that maybe it starts to wear a little bit thin: If you have persistent above-trend growth, then you have to start worrying about what the inflation consequences will be.”Fed policymakers have raised interest rates to 5.25 percent, up from near-zero as recently as March 2022, and many officials have suggested that interest rates are likely either at or near their peak.But policymakers have been careful to avoid entirely ruling out the possibility of another rate increase, given the economy’s staying power.A report yesterday showed that the economy grew at a 4.9 percent annual rate in the third quarter, after adjusting for inflation. That was a rapid pace of expansion, and was even faster than what forecasters had expected.“We are attentive to recent data showing the resilience of economic growth and demand for labor,” Jerome H. Powell, the Fed chair, said in a recent speech, adding that continued surprises “could put further progress on inflation at risk and could warrant further tightening of monetary policy.”Inflation has slowed over the past year for a number of reasons. Supply chains became tangled during the pandemic, causing shortages that pushed up goods prices — but those have eased. Gas and food prices had shot up after Russia’s invasion of Ukraine, but have faded as drivers of inflation this year.Some of those changes have little to do with monetary policy. But in other sectors, the Fed’s higher interest rates could be helping. Pricier mortgages seem to have taken at least some steam out of the housing market, for instance. That could help by spilling over to keep a lid on rent increases, which are a big factor in key measures of inflation.Wrestling inflation down the rest of the way could prove to be more of a challenge. Almost all of the remaining inflation is coming from service industries, which include things like health care, housing costs and haircuts. Such price increases tend to stick around more stubbornly.For now, officials are waiting to see if their substantial rate moves so far will continue to feed through to cool the economy.There are reasons to think that growth could soon slow.“Despite the quarter-to-quarter gyrations in economic data, the Fed feels that it has restrictive policy in place,” said Mr. Riccadonna from BNP. “It’s really just a matter of waiting for the medicine to kick in, to a full degree.”Plus, a recent jump in longer-term interest rates could weigh on the economy. While the Fed sets short term rates directly, those market-based borrowing costs can take time to adjust — and they matter a lot. The jump in long term rates is making it much more expensive to take out a mortgage or for companies to borrow to fund their operations.Plus, consumers have slightly less money to spend: After adjusting for inflation, disposable income declined by 0.1 percent in September, Friday’s report showed. And global instability — including from the war between Israel and Hamas — could add to uncertainty and economic risk.“Despite the quarter-to-quarter gyrations in economic data, the Fed feels that it has restrictive policy in place,” Mr. Riccadonna from BNP. “It’s really just a matter of waiting for the medicine to kick in, to a full degree.” More

  • 138 Shares199 Views

    in Economy

    Russia’s Central Bank Raises Rates to 15 Percent to Curb Inflation

    The jump, from 13 percent, would bring a long period of “tight monetary conditions” in order to ease price pressures, the bank said. Russia’s Central Bank on Friday raised its key interest rate by two percentage points to 15 percent, a bigger increase than expected as the bank said it was trying to bring down stubbornly high inflation. The central bank, which said the annual inflation rate would range from 7 to 7.5 percent this year, predicted a long period of “tight monetary conditions” in order to bring the rate down close to its target of 4 percent.Driving the price pressures is “steadily rising domestic demand,” the bank said in its statement, spurred by the Kremlin’s decision to inject more money into the economy as it fights a war in Ukraine. The surge in spending “is increasingly exceeding the capabilities to expand the production of goods and the provision of services,” the bank said.At a news conference Friday, Elvira Nabiullina, the head of the Central Bank, said that increased government spending was one of the reasons for the interest rate increase. Russia’s defense budget has more than tripled since last year’s invasion of Ukraine, and it is scheduled to reach almost a third of the government’s spending next year.Russia was largely successful at weathering the immediate storm produced by sanctions aimed at punishing it for the invasion. The restrictions greatly curtailed its lucrative trade with Western countries and largely isolated it from the global financial system.But as Russia spends vast amounts on its war machine, its industrial production and labor markets are unable to keep up with the increased demand, translating into higher inflation and high levels of borrowing.GUM, a luxury shopping mall in Moscow, in August last year.Nanna Heitmann for The New York TimesYevgeny Nadorshin, the chief economist at the PF Capital consulting company in Moscow, said the central bank’s effort to slow the economy by raising interest rates could “suffocate the country’s growth.” “We are in the moment when growth is transforming into a recession,” Mr. Nadorshin said.He pointed to Russia’s mortgage and consumer borrowing markets, which have experienced rapid expansion. “People are still tense about the economy, but they feel that in the moment, things are much better than expected,” Mr. Nadorshin said in a phone interview. “People feel that this is a short period that they must take advantage of.”But Dmitri Polevoy, an economist in Moscow, said that despite high interest rates, he doesn’t see major risks with the Russian economy.“This story is exclusively about inflation,” Mr. Polevoy said in written comments to questions posed through a messaging service. “Under the current budgetary policy and with the same external conditions,” he said, “the risk of a recession is low.”After experiencing a nosedive following the invasion of Ukraine, the Russian economy has returned to growth. The International Monetary Fund recently estimated economic output would rise 2.2 percent this year, as oil exports have largely evaded Western sanctions and found new customers in India, China and other countries.The country has also been able to import Western goods from some former Soviet republics, as well as Turkey and Gulf States. Russian businesses, including banks, have adapted too, serving needs since the departure of many Western companies. More

  • 163 Shares159 Views

    in Economy

    Key Fed inflation gauge rose 0.3% as expected in September; spending tops estimate

    The core personal consumption expenditures price index, which the Federal Reserve uses as a key measure of inflation, increased 0.3% for the month, as expected.
    Personal spending kept up and then some, rising 0.7%, which was better than the 0.5% forecast.

    Inflation accelerated in September but consumer spending was even stronger than expected, according to a Commerce Department report Friday.
    The core personal consumption expenditures price index, which the Federal Reserve uses as a key measure of inflation, increased 0.3% for the month, in line with the Dow Jones estimate and above the 0.1% level for August.

    Even with the pickup in prices, personal spending kept up and then some, rising 0.7%, which was better than the 0.5% forecast. Personal income rose 0.3%, one-tenth of a percentage point below the estimate.
    Including volatile food and energy prices, the PCE index increased 0.4%. On a year-over-year basis, core PCE increased 3.7%, one-tenth lower than August, while headline PCE was up 3.4%, the same as the prior month.
    The Fed focuses more on core inflation on the belief that it provides a better snapshot of where prices are headed over the longer term. Core PCE peaked around 5.6% in early 2022 and has been on a mostly downward trek since then, though it is still well above the Fed’s 2% annual target. The Fed prefers PCE as its inflation measure as it takes into account changing consumer behavior such as substituting lower-priced goods as prices increase.
    Markets mostly shrugged off the report, with stock market futures pointing slightly higher and Treasury yields mixed across the curve.
    “Although consumer prices rose faster than expected from a month ago, core inflation continues to lose speed and this report will not likely change the Fed’s view that inflation will slow in the coming months as demand slows,” said Jeffrey Roach, chief economist at LPL Financial. “Eventually, spending will moderate after several months of consumers spending more than they earn.”
    This is the last inflation report the Fed will see before its two-day policy meeting next week. Traders are pricing in a near-100% chance that the central bank will announce no rate hike when the meeting concludes Wednesday, according to the CME Group. More

  • 113 Shares179 Views

    in Economy

    Inflation Held Steady in September, While Consumers Spent Robustly

    Overall inflation stayed at 3.4 percent in September, down from a peak of around 7 percent.Inflation remained cooler in September even as consumers continued to spend at a rapid clip, a sign that the economy is chugging along despite the Federal Reserve’s efforts to contain price increases by weighing on demand.Price increases climbed by 3.4 percent in the year through September, based on the Personal Consumption Expenditures index. That was in line with forecasts, and matched the increase in August.After stripping out volatile food and fuel to get a sense of the underlying trend in prices, a core price measure climbed by 3.7 percent, also in line with economist expectations and down slightly from a revised 3.8 percent a month earlier.Fed officials aim for 2 percent inflation based on the measure released Friday — so prices are still climbing much more quickly than normal. But at the same time, price increases have moderated notably compared to the summer of 2022, when the overall P.C.E. measure eclipsed 7 percent. And encouragingly, inflation has come down even as the economy has remained very strong.Friday’s report provided additional evidence of that resilience. Consumer spending continued to grow at a brisk pace last month, picking up by 0.7 percent from the previous month, and 0.4 percent after adjusting for inflation.The question confronting Fed officials now is whether inflation can slow the rest of the way at a time when consumption remains so strong. Businesses may find that they can charge more if shoppers remain willing to open their wallets.Inflation has slowed over the past year for a number of reasons. Supply chains became tangled during the pandemic, causing shortages that pushed up goods prices — but those have eased. Gas and food prices had shot up after Russia’s invasion of Ukraine, but have faded as drivers of inflation this year.Some of those changes have little to do with monetary policy. But in other sectors, the Fed’s higher interest rates could be helping. Pricier mortgages seem to have taken at least some steam out of the housing market, for instance. That could help by spilling over to keep a lid on rent increases, which are a big factor in key measures of inflation.But overall, the economy has been surprisingly resilient to higher borrowing costs. That is keeping the possibility of a further Federal Reserve rate move on the table, though investors still think one is unlikely.Policymakers have raised interest rates to 5.25 percent, up from near-zero as recently as March 2022. Many have suggested that interest rates are likely either at or near their peak. Officials are widely expected to leave interest rates unchanged at their two-day gathering next week, which wraps up on Nov. 1.But policymakers have been careful not to rule out the possibility of another rate increase, given the economy’s continued momentum.A report yesterday showed that the economy grew at a 4.9 percent annual rate in the third quarter, after adjusting for inflation. That was a rapid pace of expansion, and was even faster than what forecasters had expected.“We are attentive to recent data showing the resilience of economic growth and demand for labor,” Jerome H. Powell, the Fed chair, said in a recent speech, adding that continued surprises “could put further progress on inflation at risk and could warrant further tightening of monetary policy.”For now, officials are waiting to see if their substantial rate moves so far will feed through to cool the economy in coming months, especially because longer-term interest rates in markets have moved up notably in recent months. That is making it much more expensive to take out a mortgage or for companies to borrow to fund their operations, and could cool the economy if it lasts. More

  • 150 Shares169 Views

    in Economy

    Global bond rout looks ‘tremendously dangerous’ for stocks, hedge fund manager warns

    An intensifying bond rout is creating a “tremendously dangerous” outlook for global equities, according to Livermore Partners’ CIO.
    Higher-for-longer interest rates have caused bond yields to surge, hampering investor returns and piling pressure on the economy, David Neuhauser told CNBC.
    “I think that is going to cause a lot of pain moving forward in terms of the economy,” he said.

    An intensifying bond rout is piling pressure on the global economy and creating a “tremendously dangerous” outlook for equities, the chief investment officer of Livermore Partners hedge fund said Friday.
    A new era of higher interest rates has caused bond yields to surge, hampering returns for investors and flipping on its head the status quo of the past decade-and-a-half, David Neuhauser told CNBC. Bond yields move inversely to prices.

    Asked how worrying that landscape was for equities, he said: “I think it’s tremendously dangerous at this point.”
    “We’re in this world of risk where, for almost 15 years, you had a bond market that was in a bull market, and you had rates negative for several years,” Neuhauser told “Squawk Box Europe.”
    “That dynamic fed throughout the global economy, where housing prices were affordable, autos were affordable, and people were subjected to an environment and a lifestyle which had much lower interest rates.”

    That environment has shifted as central banks have pushed ahead with rate hikes to tackle higher inflation. That, in turn, has pushed bond yields higher and sapped money from government budgets by raising borrowing costs.
    In the U.S. Treasury market — a crucial component of the global financial system — bond yields have surged to highs not seen since the onset of the global financial crisis. In Germany, Europe’s largest economy, yields have hit their highest level since the 2011 euro zone debt crisis. And in Japan, where interest rates are still below 0%, yields have risen to 2013 highs.

    “I think that is going to cause a lot of pain moving forward in terms of the economy,” Neuhauser said.

    Bond bears ‘back from the dead’

    Those fiscal imbalances are giving “a lot of ammunition to the bond bears,” the hedge fund manager added, with interest rates likely to remain higher for longer.
    “What you’re seeing now with the bond market is, you know, bond vigilantes are back in vogue, back from the 80s, back from the dead, and I think they’re leading the market today,” Neuhauser said.
    Neuhauser’s statement echoes similar comments earlier this week from UBS Asset Management’s head of global sovereign and currency, Kevin Zhao, who said “the bond vigilante is coming back.”

    NEW YORK, NY – FEBRUARY 27: Traders work on the floor of the New York Stock Exchange on February 27, 2020 in New York City. With concerns growing about how the coronavirus might affect the economy, stocks fell for the fourth straight day. The Dow Jones Industrial Average lost almost 1200 points on Thursday. (Photo by Scott Heins/Getty Images)
    Scott Heins | Getty Images News | Getty Images

    Central banks have been keen to stress that interest rates are unlikely to start falling any time soon. The European Central Bank reiterated the point Thursday, holding rates steady at a record high of 4%, while the U.S. Federal Reserve is expected to hold at 5.25%-5.50% next week.
    Neuhauser said these higher rates will weigh heavily on consumers and corporates.
    “I think that’s going to cause a lot of pressure on the credit markets, it’s going to cause a lot of pressure on the consumer going forward,” he said.
    Corporates, too, are set to come under pressure from high debt and refinancing costs, Neuhauser said.
    “Ultimately that will lead to the downtrend of the economy and also it’s going to hurt the stock market and you’re starting to see that today,” he added. More