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    U.A.W. Says Auto Strikes Will Become More Unpredictable

    The United Automobile Workers union refrained from expanding the strikes at Ford, General Motors and Stellantis but said it could do so at any time.Four weeks after starting limited strikes against three large automakers, the United Automobile Workers is shifting to a more aggressive strategy, suggesting that work stoppages could spread to more plants and possibly go on for some time.In an online video, the union’s president, Shawn Fain, said on Friday that he would no longer wait to announce expansions of the strikes on Friday, as he had been doing. Further actions could come at any time.“We’re not messing around,” Mr. Fain said. “The companies are now on notice. If they’re not willing to move, we are going to give them a push.”The union began its strikes on Sept. 15 when workers walked out of three plants, owned by General Motors, Ford Motor and Stellantis, which makes Chrysler, Jeep and Ram vehicles. It has since expanded the strike in stages, in a bid to increase the pressure on the companies.Stellantis said on Friday that it was temporarily laying off an additional 700 workers at two plants in Indiana that supply transmissions and castings for a Toledo, Ohio, Jeep factory that has been idled by the U.A.W. strikes. Stellantis has laid off more than 1,300 workers in total in response to the union’s strikes.Ford has laid off more than 1,900 workers as a result of the strike, and G.M. about 2,300. Ford said about 90 of its parts suppliers had laid off about 13,000 workers.Stellantis also said its negotiations had made progress in talks with the U.A.W. this week. The company said it hoped “to reach an agreement as soon as possible to get everyone back to work.”The U.A.W. and the automakers have been negotiating new labor contracts since July.On Wednesday, the U.A.W. unexpectedly told workers to walk out of Ford’s Kentucky Truck Plant in Louisville. It is the company’s largest and the producer of its highly profitable Super Duty version of its F-Series pickup trucks.Ford has said the Kentucky plant typically produces a new truck every 37 seconds, and generates $25 billion in revenue, about 16 percent of the company’s annual total.All told, the strike has halted operations at three Ford plants in Michigan, Chicago and Kentucky; two G.M. plants in Michigan and Missouri; and a Stellantis plant in Ohio. U.A.W. members are also on strike at 38 G.M. and Stellantis spare-parts warehouses across the country.About 34,000 of the 150,000 U.A.W. members employed by the three companies are now on strike.The U.A.W. has demanded substantial wage increases and improvements in other areas of its contract, like retirement plans. The union also wants an end to a system that pays new hires a little over half the top U.A.W. wage of $32 an hour.The union is also concerned about the possible loss of jobs as automakers ramp up production of electric vehicles. The companies have offered wage increases of more than 20 percent over four years and to reduce the time it takes a new worker to rise to the top wage to four years from eight.On Thursday, Ford officials said the company had reached its limit on what it could offer the union without hurting the company’s business and its ability to continue heavy investments in electric vehicles. “Any more will stretch our ability to invest in the business,” Kumar Galhotra, president of the Ford division that makes combustion engine vehicles, said on a conference call on Thursday.Apart from the car companies, U.A.W.-represented workers went on strike this week at Mack Trucks. Its members voted this week to authorize a strike against General Dynamics, an aerospace and defense contractor. The U.A.W. also represents about 1,000 workers who have been on strike at Blue Cross Blue Shield of Michigan for a month. More

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    The Upshot of Microsoft’s Activision Deal: Big Tech Can Get Even Bigger

    President Biden’s top antitrust officials have used novel arguments over the past few years to stop tech giants and other large companies from making deals, a strategy that has had mixed success.But on Friday, when Microsoft closed its blockbuster $69 billion acquisition of the video game publisher Activision Blizzard after beating back a federal government challenge, the message sent by the merger’s completion was incontrovertible: Big Tech can still get bigger.“Big Tech companies will certainly be reading the tea leaves,” said Daniel Crane, a law professor at the University of Michigan. “Smart money says merge now while the merging is good.”Microsoft’s purchase of Activision was the latest deal to move forward after a string of failed challenges to mergers by the Federal Trade Commission and the Justice Department, which are also confronting the big tech companies through lawsuits arguing they broke antimonopoly laws. Leaders at the two agencies had tried to block at least 10 other deals over the past two years, promising to dislodge longstanding ideas from antitrust law that they said had protected behemoths like Microsoft, Google and Amazon.But their efforts ran headlong into skeptical courts, largely leaving those core assumptions untouched. In the case of Microsoft’s Activision deal, the idea that the F.T.C. questioned was a “vertical” transaction, which refers to mergers between firms that are not primarily direct competitors. Regulators have rarely sued to block such deals, figuring that they generally do not create monopolies.Yet “vertical” deals have been especially common in the tech industry, where companies like Meta, Apple and Amazon have sought to grow and protect their empires by spreading into new business lines.In 2017, for instance, Amazon bought the high-end grocery chain Whole Foods for $13.4 billion. In 2012, Meta acquired the photo-sharing app Instagram for $1 billion and then shelled out nearly $19 billion for the messaging service WhatsApp in 2014. Of the 24 deals worth more than $1 billion completed by the tech giants from 2013 to mid-August of this year, 20 were vertical transactions, according to data provided by Dealogic.The sealing of the Microsoft-Activision deal has buttressed the notion that vertical deals generally are not anticompetitive and can still go through relatively unscathed.“There continues to be the presumption that vertical integration can be a healthy phenomena,” said William Kovacic, a former chair of the F.T.C. The F.T.C. is proceeding with its challenge to the Microsoft-Activision deal even as it has closed, said Victoria Graham, a spokeswoman for the agency, who added that the acquisition was a “threat to competition.” The Justice Department declined to comment. The White House did not immediately have a comment.The idea that vertical transactions were less likely to harm competition than combinations of direct rivals has been ingrained since the late 1970s. In the ensuing decades, the Justice Department and F.T.C. took no challenges to vertical deals to court, instead reaching settlements that allowed companies to proceed with their deals if they changed practices or divested parts of their business.Then, in 2017, the Justice Department sued to block the $85.4 billion merger between the phone giant AT&T and the media company Time Warner, in the agency’s first attempt to stop a vertical deal in decades. A judge ruled against the challenge in 2018, saying he did not see enough evidence of anticompetitive harms from the union of companies in different industries.Mr. Biden’s top antitrust officials — Lina Khan, the F.T.C. chair, and Jonathan Kanter, the top antitrust official at the Justice Department — have been even more aggressive in challenging vertical mergers since they were appointed in 2021.That year, the F.T.C. sued to stop the chip maker Nvidia from buying Arm, which licenses chip technology, and the companies abandoned the deal. In January 2022, the F.T.C. announced it would block Lockheed Martin’s $4.4 billion acquisition of Aerojet Rocketdyne Holdings, a missile propulsion systems maker. The companies dropped their merger.But judges rejected many of their efforts for lack of evidence and denied Ms. Khan and Mr. Kanter a courtroom win that would have set new precedent. In 2022, after the D.O.J. sued to block UnitedHealth Group’s acquisition of Change Healthcare, a judge ruled against the agency.Lina Khan, the chair of the Federal Trade Commission, challenged Microsoft’s deal for Activision last year. Tom Brenner for The New York TimesThe F.T.C.’s move to block Microsoft’s purchase of Activision last year was a bold effort by Ms. Khan, given that the two companies do not primarily compete with one another. The agency argued that Microsoft, which makes the Xbox gaming console, could harm consumers and competition by withholding Activision’s games from rival consoles and would also use the deal to dominate the young market for game streaming.To show that would not be the case, Microsoft offered to make one of Activision’s major game franchises, Call of Duty, available to other consoles for 10 years. The company also reached a settlement with the European Union, promising to make Activision titles available to competitors in the nascent market for game streaming, which allowed the deal to go through.In July, a federal judge ultimately ruled that the F.T.C. didn’t provide enough evidence that Microsoft intended to forestall competition through the deal and that the software giant’s concession eliminated competition concerns.The agencies are “facing judges who have said 40 years of economics show that vertical mergers are good,” said Nancy Rose, a professor of applied economics at M.I.T. with an expertise in antitrust, who is among a group of scholars who say vertical deals can be harmful to competition. She said the agencies should not back down from challenging vertical mergers, but that regulators would need to be careful to choose cases they can prove with an abundance of evidence.Ms. Khan and Mr. Kanter have said they are willing to take risks and lose lawsuits to expand the boundaries of the law and spark action in Congress to change antitrust rules. Ms. Khan has noted that the F.T.C. has successfully stopped more than a dozen mergers.Mr. Kanter has said that challenges to mergers from the Justice Department and the F.T.C. have deterred problematic deals.“There are fewer problematic mergers that are coming to us in the first place,” he said in a speech at the American Economic Liberties Project, a left-leaning think tank, in August.Still, bigger companies that have the resources to fight back will probably feel more confident challenging regulators after the Microsoft-Activision deal, antitrust lawyers said. The aggressive posture by regulators has simply become the cost of doing business, said Ryan Shores, who led tech antitrust investigations at the D.O.J. during the Trump administration and is now a partner at the law firm Cleary Gottlieb.“A lot of companies have come to the realization that if they have a deal they want to get through, they have to be prepared to litigate,” he said. More

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    Philadelphia Fed President Harker advocates holding interest rates ‘where they are’

    Patrick Harker President Federal Reserve Bank of Philadelphia, August 24, 2023.
    David A. Grogan | CNBC

    Philadelphia Federal Reserve President Patrick Harker said Friday he thinks the central bank can stop raising interest rates.
    “Absent a stark turn in what I see in the data and hear from contacts … I believe that we are at the point where we can hold rates where they are,” Harker said in prepared remarks for the Delaware State Chamber of Commerce. “Look, we did a lot, and we did it very fast.”

    As a voting member this year on the rate-setting Federal Open Market Committee, Harker’s words carry extra weight as policymakers contemplate their next step forward. Though his remarks align with what several other officials have said recently, they are perhaps the most explicit endorsement yet of a halt in rate hikes.
    The Fed has raised its benchmark borrowing rate 11 times since March 2022, totaling 5.25 percentage points. In September, the FOMC chose to hold rates steady as members differed over where inflation is headed.
    In recent days, multiple Fed officials have cited the tightened financial conditions brought on by a surge in Treasury yields as helping the central bank in its quest to slow the economy and bring down inflation.
    However, Harker did not rely on the market moves but instead said the Fed simply has made substantial progress in bringing down prices without causing a surge in unemployment or otherwise tanking the economy. He said it can now watch the impact that its rate hikes are having and use incoming data as its guide to where policy needs to go.
    “Holding rates steady will let monetary policy do its work. I am sure policy rates are restrictive, and as long they remain so, we will steadily press down on inflation and bring markets into a better balance,” he said. “By doing nothing, we are still doing something. And, actually, we are doing quite a lot.”

    Reports this week showed that 12-month rates for inflation are coming down but remain above the Fed’s 2% annual target. Separate readings on producer and consumer prices both were higher than Wall Street economists had expected, raising the specter that the Fed might have to do more.
    However, Harker said he won’t be moved by one month of data, noting that the Fed’s preferred measure, the personal consumption expenditures price index, in August showed its smallest monthly increase since 2020.
    “We will not tolerate a reacceleration in prices,” he said. “But second, I do not want to overreact to the normal month-to-month variability of prices.”
    “We remain data dependent but patient and cautious with the data,” he added.
    Harker noted that the Fed remains attuned to a variety of risks, from the banking turmoil earlier this year to rising credit card balances and labor strife. But he said the economy overall has held up, and he thinks unemployment will at most edge higher as more people enter the workforce and labor market imbalances work themselves out.
    Still, he did not provide any indication that he expects cuts anytime soon.
    “I do subscribe to the new moniker, ‘higher for longer.’ I didn’t coin it, but my expectation is that rates will need to stay high for a while,” he said.
    However, added that he “would have no hesitancy to support further rate increases” if inflation were to rebound. More

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    Retailers’ Seasonal Hiring Plans Signal a Cooling Labor Market

    After scrambling to fill out work forces in recent years, many companies are reporting more modest goals for temporary employment.As the most important selling season for retailers approaches, job applicants may feel a chill.Macy’s and Dick’s Sporting Goods plan to hire fewer seasonal workers after a surge in the past two years, when shoppers thronged to stores after pandemic lockdowns and employers struggled to keep up. Many retailers have dropped the incentives they used over the past few years to bring workers in the doors, such as signing or referral bonuses and steeper employee discounts.The career site Indeed said that searches for seasonal jobs were up 19 percent from last year, but that listed positions were down 6 percent. Companies helping businesses find temporary workers note that major retailers have been slower to release hiring plans this year. And on Indeed, fewer job postings are described as urgent needs.Seasonal hiring helps retailers handle the increased shopping during the fourth quarter, often referred to as “peak season.” Sales in November and December can account for a quarter of some retailers’ annual revenue. In the weeks leading up to Christmas, foot traffic in stores and online shopping are usually at their height.Early estimates point to an increase in retail spending this holiday season, but not at the fast pace of recent years.Some economists and consultants see the trends in hiring and pay as a sign that the red-hot labor market of the past couple of years has cooled. Retailers’ work forces, unsteady throughout the Covid-19 pandemic, are starting to stabilize. As inflation erodes shoppers’ budgets and confidence — and savings from pandemic relief programs are drawn down — the hiring plans may be part of a cautious approach that extends to inventories and sales projections.“The seasonal hiring market looks a whole lot more like 2019 than those pandemic bounce-back years,” said Nick Bunker, director of North American economic research for Indeed. “I really do think this is emblematic broadly of what we’re seeing in the U.S. labor market, where demand for workers overall is fairly strong but down from where it was in the last year and a half.”Macy’s is aiming to hire 38,000 workers, 3,000 below its 2022 plan. In 2021, Macy’s said it aimed to hire 76,000 people — in both permanent roles and seasonal jobs — during the holiday season. Of those positions, 48,000 were temporary.Dick’s said it would hire up to 8,600 seasonal workers, down from targets of 9,000 last year and 10,000 in 2021 — and up only slightly from 8,000 in 2019.“The seasonal hiring market looks a whole lot more like 2019 than those pandemic bounce-back years,” said Nick Bunker, an economic researcher at Indeed.Nam Y. Huh/Associated PressTarget and United Parcel Service plan to hire the same number of workers as last year, about 100,000 each. In a statement, Target said its seasonal associates would supplement the hiring it had done throughout the year to staff up its stores and supply chain facilities.“This year, we are starting the season with stability in our work force and a continued commitment to scheduling flexibility for our team, which has helped us retain team members and create a more experienced work force,” the company said in a post on its blog.Walmart, the nation’s biggest retailer, echoed that sentiment.“I’m also excited that we’re staffed and ready to serve customers this holiday season,” Maren Dollwet Waggoner, senior vice president of people at Walmart U.S., said in a post on LinkedIn. “We’ve been hiring throughout the year to be sure we’re ready to serve customers however they want to shop.”A Walmart spokeswoman added that if a store had additional staffing needs during the holiday season, it would offer extra hours to current employees before looking externally. Walmart did not say how many seasonal workers it planned to hire this year, as it did in years past. (In 2022, it said it was looking to fill 40,000 seasonal positions, including truck drivers and call center workers.)Amazon is a notable exception, saying it will hire more seasonal workers this year — 250,000, up from 150,000 last year. It also said that a $1.3 billion investment would bring the average hourly wage of those jobs to more than $20.50 and that it would still offer signing bonuses in some locations.Matching staffing to demand helps ensure that retailers eke out as many sales as they can.Seasonal workers are “the folks that are on the front lines of their business,” said John Long, North America retail sector leader at the consulting firm Korn Ferry, adding that aside from a store’s inventory, they “are going to be the make-or-break piece of the equation of whether the retailer makes their numbers or they don’t.”Amazon said it planned to hire 250,000 seasonal workers, up from 150,000 last year.Karsten Moran for The New York TimesAfter paring their work forces during the worst of the pandemic, employers in the retail and hospitality industries scrambled to fill open positions as workers sought more flexibility, switched companies frequently or stood on the sidelines. To get back to prepandemic staffing, retailers have used evergreen requisitions — continually displayed postings advertising essential roles that often need to be filled — and have started hiring seasonal workers as early as August.They have also given more hours to part-time workers and relaxed qualifications. To reduce turnover, many companies have bumped up their base wages for hourly positions.These factors have complicated the explanation for reduced seasonal hiring this year, said Melissa Hassett, a vice president at Manpower Group who works with large retailers, logistics and distributors across the country.“If you’re always hiring, you’re just not going to see an increase in postings happen very often,” she said. “So sometimes when you look at the increase in postings for retail it’s not as accurate as you think it is.”But there is also a feeling that the leverage of retail job applicants will fade.“In the past it felt like the workers had a lot more upper hand in terms of being able to demand what they need,” Yong Kim, founder of the staffing platform Wonolo, said. That dynamic has changed, especially for temporary positions.“There is definitely more tightening around companies wanting to hold off on hiring unless they really need to” and waiting to see how the fourth quarter pans out, Mr. Kim said. More

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    Inflation Slowdown Remains Bumpy, September Consumer Price Data Shows

    Prices are rising at a pace that is much less rapid than in 2022, but signs of stalling progress are likely to keep Federal Reserve officials wary.Consumer prices grew at the same pace in September as they had in August, a report released on Thursday showed. The data contained evidence that the path toward fully wrangling inflation remains a long and bumpy one.The Consumer Price Index climbed 3.7 percent from a year earlier. That matched the August reading, and it was slightly higher than the 3.6 percent that economists had predicted.The report did contain some optimistic details. After cutting out food and fuel prices, both of which jump around a lot, a “core” measure that tries to gauge underlying price trends climbed 4.1 percent, which matched what economists had expected and was down from 4.3 percent previously. And inflation is still running at a pace that is much less rapid than in 2022 or even earlier this year.Even so, several signs in the report suggested that recent progress toward slower price increases may be stalling out — and that could help to keep officials at the Federal Reserve wary.The S&P 500 fell 0.6 percent and the yield on 10-year Treasuries rose on Thursday to 4.7 percent, as investors worried that September’s inflation report showed less progress than they had hoped for, both in rents and a measure of inflation that strips out volatile goods and services.Fed policymakers have been raising interest rates in an effort to slow economic growth and wrestle inflation under control. They have already lifted borrowing costs to a range of 5.25 to 5.5 percent, up sharply from near-zero 19 months ago. Now, they are debating whether one final rate move is needed.Given the fresh inflation data, economists predict that policymakers are likely to keep the door open to that additional rate increase until they can be more confident that they are well on their way to winning the battle against rising prices. Inflation has begun to flag, but the September data served as a reminder that it is not yet clearly vanquished.“This report still suggests that we have stepped out of the higher inflation regime,” said Laura Rosner-Warburton, a senior economist at MacroPolicy Perspectives. Still, “we’re not out of the woods — there are still some sticky corners of inflation.” More

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    Ford Says It Won’t Raise Its Contract Offer to U.A.W.

    The company said it had reached the limit of what it could offer to the United Automobile Workers union, which has expanded its strike to Ford’s largest plant.Ford Motor said on Thursday that it could not improve its contract offer to the United Automobile Workers union without hurting its business and its ability to invest in electric vehicles.The automaker also said the union’s decision to expand its strike to Ford’s largest factory, the Kentucky Truck Plant, would probably hurt workers at other factories and lead to layoffs across the auto industry.“We are very clear,” Kumar Galhotra, president of the Ford division that makes combustion engine vehicles, said in a conference call with reporters. “We are at the limit. Any more will stretch our ability to invest in the business.”The U.A.W. is negotiating new labor contracts with Ford, General Motors and Stellantis, the parent of Chrysler and Jeep. The union’s members have struck selected plants and parts warehouses owned by the three companies. On Wednesday, its talks with Ford broke down, and the union responded by calling on the 8,700 U.A.W. workers at Kentucky Truck to walk off the job.“If the companies are not going to come to the table and take care of the membership’s needs, then we will react,” the U.A.W. president, Shawn Fain, said in an online video after the strike in Kentucky was announced.Production at the plant, in Louisville, stopped Wednesday evening. The factory makes the Super Duty versions of Ford’s F-Series pickup trucks as well as the Ford Expedition and Lincoln Navigator full-size sport utility vehicles.On its own, the Kentucky Truck plant generates about 16 percent of Ford’s revenue. On a typical day, a new vehicle rolls off its assembly line every 37 seconds.The plant is so large that a prolonged idling will probably cause stoppages and layoffs at up to 13 other Ford plants that make engines, transmission and axles. Factories owned by the 600 suppliers that provide parts for Ford could also have to lay off workers, Mr. Galhotra said.“This goes way beyond just hitting Ford’s profits,” he said.The U.A.W. is seeking a substantial increase in wages as well as a cost-of-living provision, an expanded retirement plan, improved retiree health care benefits and job security as automakers make the transition to producing electric vehicles. It also wants to end a system in which new hires start at a little more than half the top U.A.W. wage of $32 an hour.Ford has offered to increase wages 23 percent over four years, adjust wages in response to inflation and cut the time for new hires to rise to the top wage, to four years from eight.The U.A.W. went into a negotiating session on Wednesday expecting Ford to sweeten its offer, according to the union. Mr. Galhotra said Ford was prepared to discuss adjustments to its existing offer but not to make a completely new proposal.The differences became clear quickly, and Mr. Fain instructed Ford workers at the Kentucky plant to strike, union and company officials said. Mr. Fain and other union negotiators left the meeting minutes after it started.“Unfortunately, we had to escalate our action,” Mr. Fain said in his video. “We came here today to get another offer from Ford, and they gave us the same exact offer as two weeks ago.” More

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    Getting to 2% inflation won’t be easy. This is what will need to happen, and it might not be pretty

    In theory, getting inflation closer to the Fed’s target doesn’t sound terribly difficult. In practice, it could be a different story.
    Without progress on services and shelter, there’s little chance of the Fed achieving its goal anytime soon.
    “You need a recession,” said Steven Blitz, chief U.S. economist at GlobalData TS Lombard.

    A construction in a multifamily and single family residential housing complex is shown in the Rancho Penasquitos neighborhood, in San Diego, California, September 19, 2023.
    Mike Blake | Reuters

    In theory, getting inflation closer to the Federal Reserve’s 2% target doesn’t sound terribly difficult.
    The main culprits are related to services and shelter costs, with many of the other components showing noticeable signs of easing. So targeting just two areas of the economy doesn’t seem like a gargantuan task compared to, say, the summer of 2022 when basically everything was going up.

    In practice, though, it could be harder than it looks.
    Prices in those two pivotal components have proven to be stickier than food and gas or even used and new cars, all of which tend to be cyclical as they rise and fall with the ebbs and flows of the broader economy.

    Instead, getting better control of rents, medical care services and the like could take … well, you might not want to know.
    “You need a recession,” said Steven Blitz, chief U.S. economist at GlobalData TS Lombard. “You’re not going to magically get down to 2%.”
    Annual inflation as measured by the consumer price index fell to 3.7% in September, or 4.1% if you kick out volatile food and energy costs, the latter of which has been rising steadily of late. While both numbers are still well ahead of the Fed’s goal, they represent progress from the days when headline inflation was running north of 9%.

    The CPI components, though, told of uneven progress, helped along by an easing in items such as used-vehicle prices and medical care services but hampered by sharp increases in shelter (7.2%) and services (5.7% excluding energy services).
    Drilling down further, rent of shelter also rose 7.2%, rent of primary residence was up 7.4%, and owners’ equivalent rent, pivotal figures in the CPI computation that indicates what homeowners think they could get for their properties, increased 7.1%, including a 0.6% gain in September.
    Without progress on those fronts, there’s little chance of the Fed achieving its goal anytime soon.

    Uncertainty ahead

    “The forces that are driving the disinflation among the various bits and micro pieces of the index eventually give way to the broader macro force, which is rising, which is above-trend growth and low unemployment,” Blitz said. “Eventually that will prevail until a recession comes in, and that’s it, there’s nothing really much more to say than that.”
    On the bright side, Blitz is among those in the consensus view that see any recession being fairly shallow and short. And on the even brighter side, many Wall Street economists, Goldman Sachs among them, are coming around to the view that the much-anticipated recession may not even happen.
    In the interim, though, uncertainty reigns.
    “Sticky-price” inflation, a measure of things such as rents, various services and insurance costs, ran at a 5.1% pace in September, down a full percentage point from May, according to the Cleveland Fed. Flexible CPI, including food, energy, vehicle costs and apparel, ran at just a 1% rate. Both represent progress, but still not a goal achieved.

    Markets are puzzling over what the central bank’s next step will be: Do policymakers slap on another rate hike for good measure before year-end, or do they simply stick to the relatively new higher-for-longer script as they watch the inflation dynamics unfold?
    “Inflation that is stuck at 3.7%, coupled with the strong September employment report, could be enough to prompt the Fed to indeed go for one more rate hike this year,” said Lisa Sturtevant, chief economist for Bright MLS, a Maryland-based real estate services firm. “Housing is the key driver of the elevated inflation numbers.”
    Higher interest rates’ biggest impact has been on the housing market in terms of sales and financing costs. Yet prices are still elevated, with concern that the high rates will deter construction of new apartments and keep supply constrained.
    Those factors “will only lead to higher rental prices and worsening affordability conditions in the long run,” wrote Christopher Bruen, senior director of research at the National Multifamily Housing Council. “Rising rates threaten the strength of the broader job market and economy, which has not yet fully digested the rate hikes already enacted.”

    Longer-run concerns

    The notion that rate increases totaling 5.25 percentage points have yet to wind their way through the economy is one factor that could keep the Fed on hold.
    That, however, goes back to the idea that the economy still needs to cool before the central bank can complete the final mile of its race to bring down inflation to the 2% target.
    One positive in the Fed’s favor is that pandemic-related factors largely have washed out of the economy. But other factors linger.
    “Pandemic-era effects have a natural gravitational pull and we’ve seen that take place over the course of the year,” said Marta Norton, chief investment officer for the Americas at Morningstar Wealth. “However, bringing inflation the remainder of the distance to the 2% target requires economic cooling, no easy feat, given fiscal easing, the strength of the consumer and the general financial health in the corporate sector.”
    Fed officials expect the economy to slow this year, though they have backed off an earlier call for a mild recession.
    Policymakers have been banking on the notion that when existing rental leases expire, they will be renegotiated at lower prices, bringing down shelter inflation. However, the rising shelter and owners’ equivalent rent numbers are running counter to that thinking even though so-called asking rent inflation is easing, said Stephen Juneau, U.S. economist at Bank of America.
    “Therefore, we must wait for more data to see if this is just a blip or if there is something more fundamental driving the increase such as higher rent increases in larger cities offsetting softer increases in smaller cities,” Juneau said in a note to clients Thursday. He added that the CPI report “is a reminder that we do not have good historic examples to lean on” for long-term patterns in rent inflation. More

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    Consumer prices rose 0.4% in September, more than expected

    A person goes through a note pad while shopping for items at a Costco Wholesale store on September 6, 2023 in Colchester, Vermont. 
    Robert Nickelsberg | Getty Images

    Prices that consumers pay for a wide variety of goods and services increased at a slightly faster than expected pace in September, keeping inflation in the spotlight of policymakers.
    The consumer price index, a closely followed inflation gauge, increased 0.4% on the month and 3.7% from a year ago, according to a Labor Department report Thursday. That compared to respective Dow Jones estimates of 0.3% and 3.6%.

    Excluding volatile food and energy prices, so-called core CPI increased 0.3% on the month and 4.1% on a 12-month basis, both exactly in line with expectations. Policymakers place more weight on the core numbers as they tend to be better predictors of long-term trends.

    In keeping with recent trends, shelter costs were the main factor in the inflation increase. The index for shelter, which makes up about one-third of the CPI weighting, accelerated 0.6% for the month and 7.2% from a year ago.
    Energy costs rose 1.5%, including a 2.1% pickup in gasoline prices and 8.5% on fuel oil, and food was up 0.2% for the third month in a row.
    Services prices, considered a key for the longer-run direction for inflation, also posted a 0.6% gain excluding energy services, and were up 5.7% on a 12-month basis. Vehicle prices were mixed, with new vehicles up 0.3% and used down 2.5%.
    Markets showed only a modest reaction to the report. Stock market futures were off their highs but still mostly positive while Treasury yields came off previous lows, with longer-duration notes little changed.

    The CPI increase meant worker wages fell in real terms.
    Real average hourly earnings fell 0.2% on the month, owing to the difference between the inflation rate and the 0.2% gain in nominal earnings, the Labor Department said in a separate report. On a yearly basis, earnings were up 0.5%.
    In other economic news Thursday, the Labor Department reported that initial jobless claims totaled 209,000, unchanged from the previous week and just below the 210,000 estimate.
    The CPI report comes with Federal Reserve officials contemplating their next policy moves.
    Minutes from the Fed’s September meeting, released Wednesday, reflected divisions within the rate-setting Federal Open Market Committee. The meeting concluded with the committee opting not to raise interest rates, but the summary showed lingering concern about inflation and worries that upside risks remain.
    Since then, however, Treasury yields have jumped, at one point hitting 16-year highs.
    Multiple Fed officials have said that the increases could negate the need for further policy tightening, and markets now are pricing only a small chance that the central bank votes to hike before the end of the year. Market pricing further indicates that the Fed will shave about 0.75 percentage point off its key borrowing rate before the end of 2024.
    Recent days, though, have brought mixed news on where inflation is heading.
    The Labor Department said Thursday that prices at the wholesale level increased 0.5% in September, pushing the 12-month rate to 2.2%, the highest since April and above the Fed’s goal of 2% inflation.
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