Evelyn Reynolds

Federal Reserve Vice Chair Lael Brainard indicated Monday that the central bank could soon slow the pace of its interest rate increases.
“I think it will probably be appropriate soon to move to a slower pace of rate increases,” she told Bloomberg News in a live interview.

Lael Brainard, vice chair of the US Federal Reserve, listens to a question during an interview in Washington, DC, US, on Monday, Nov. 14, 2022.
Andrew Harrer | Bloomberg | Getty Images

Federal Reserve Vice Chair Lael Brainard indicated Monday that the central bank could soon slow the pace of its interest rate increases.
With markets expecting a likely step down in December from the Fed’s rapid pace of rate increases this year, Brainard confirmed that a slowdown if not a stop is looming.

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“I think it will probably be appropriate soon to move to a slower pace of rate increases,” she told Bloomberg News in a live interview.
That doesn’t mean the Fed will stop raising rates, but it at least will come off a pace that has seen four consecutive 0.75 percentage point increases, an unprecedented pattern since the central bank started using short-term rates to set monetary policy in 1990.
“I think what’s really important to emphasize is we’ve done a lot but we have additional work to do both on raising rates and sustaining restraint to bring inflation down to 2% over time,” Brainard said.
Brainard spoke a week after the Fed took its benchmark interest rate to a 3.75%-4% targeted range, the highest level in 14 years. The Fed has been battling inflation running at its highest level since the early 1980s and continued at a 7.7% annual pace in October, according to the Bureau of Labor Statistics.
The consumer price index rose 0.4% last month, less than the Dow Jones estimate for 0.6%, and Brainard said she has seen signs that inflation is cooling.

“We have raised rates very rapidly … and we’ve been reducing the balance sheet, and you can see that in financial conditions, you can see that in inflation expectations, which are quite well-anchored,” she said.
Along with the rate hikes, the Fed has been reducing the bond holdings on its balance sheet at a maximum pace of $95 billion a month. Since that process, nicknamed “quantitative tightening,” began in June, the Fed’s balance sheet has contracted by more than $235 billion but remains at $8.73 trillion.

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Americans grew more worried about inflation in the October, with fears emanating primarily from an expected burst in gasoline prices.
A New York Fed survey showed inflation expectations for the year ahead rose to 5.9%, while the three-year outlook increased to 3.1%.
Home prices were expected to nudge higher by 2%, tied for the lowest since June 2020.

A Sheetz customer gets gasoline at a gas station in Plains, Pennsylvania, U.S. October 19, 2022. 
Aimee Dilger | Reuters

Americans grew more worried about inflation in the October, with fears emanating from an expected burst in gasoline prices, a Federal Reserve survey showed Monday.
Inflation expectations for the year ahead rose to 5.9%, up half a percentage point from September to the highest level since July, according to the New York Fed’s monthly Survey of Consumer Expectations. Three-year expectations also accelerated to 3.1%, while the five-year outlook rose to 2.4%, respective increases from 2.9% and 2.2%.

At the root of the heightened worries was an expected jump in prices at the pump, which have been declining over the past month.
Respondents think gas prices will increase by 4.8% over the next year, up from 0.5% in September for the biggest one-month increase in survey data that goes back to June 2013.
The year-ahead projection for food prices increased, with consumers now anticipating a 7.6% increase, up from 6.8% in September. The outlook for medical costs and rent were little changed, with the latter up 0.1 percentage point, while the expectations for college costs fell to 8.6%, a 0.4 percentage point decline from September.
The survey comes less than a week after the Bureau of Labor Statistics reported that inflation, as gauged by the consumer price index, rose 0.4% in October. That was lower than the 0.6% Dow Jones estimate for the monthly gain, while the annual rise of 7.7% was half a percentage point lower than the previous month.
Fed policymakers have been raising interest rates aggressively this year to bring down inflation. A series of increases has brought the central bank’s benchmark rate up about 3.75 percentage points, with markets expecting additional hikes into the early part of 2023.

The increases have had some impact already, particularly in the housing market, where 30-year mortgage rates around 7% have impacted sales and prices.
Home prices were expected to nudge higher by 2%, the same as September and tied for the lowest since June 2020.
The Fed’s efforts to cool the red-hot labor market also are projected to have some impact. Some 42.9% of respondents expect the unemployment rate to be up a year from now, representing the highest level since April 2020.
The survey, however, showed a median expectation for household income of 4.3% in the next year, a record level. Spending growth rose a full percentage point to 7%.
Credit is expected to be harder to come by — a record-high 56.7% think it will be more difficult to get financing a year from now.
A separate gauge released Monday from the quarterly Survey of Professional Forecasters also pointed to higher inflation coupled with lower economic growth. The survey sees GDP growth of just 1.6% this year and 1.3% in 2023, while CPI inflation is projected to be 7.7% in 2022 and 3.4% in 2023, up from previous estimates of 7.5% and 3.2% respectively.

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The University of Michigan Survey of Consumers posted a 54.7 reading for November, down 8.7% from the previous month’s reading and well below the estimate.
The survey noted a particular slide in views on spending for durable goods — big-ticket items such as televisions, kitchen appliances and motor vehicles. The index for that group fell 21%.

Shoppers are seen in a Kroger supermarket on October 14, 2022, in Atlanta, Georgia.
Elijah Nouvelage | AFP | Getty Images

Higher interest rates, a potential recession and persistently high prices made consumers substantially less confident about the current state of the economy as well as where things are heading, according to a closely watched sentiment gauge released Friday.
The University of Michigan Survey of Consumers posted a 54.7 reading for November, down 8.7% from the previous month’s reading of 59.9. That was well off the Dow Jones estimate, which forecast the number to be little changed at 59.5.

Along with that reading, the current economic conditions index fell 11.9% to 57.8. The index of consumer expectations, which looks at where respondents see things heading in six months, tumbled 6.2% to 52.7.
On an annual basis, the headline index reading fell 18.8%, while the current conditions measure was off 21.5% and the future expectations measure slid 17%.

The University of Michigan release comes a day after the Bureau of Labor Statistics reported that the consumer price index rose 0.4% in October, below the 0.6% estimate. That news set off a wild rally on Wall Street, where sentiment rang high that the Federal Reserve could ease the pace of interest rate increases as inflation shows signs of leveling off.
“For now, both inflation and higher borrowing costs are squeezing household spending,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “For low-income households in particular, higher prices for essentials limit discretionary spending, crimp savings, and contribute to higher credit card debt.”
The survey noted a particular slide in views on spending for durable goods — big-ticket items such as televisions, kitchen appliances and motor vehicles. The index for that group fell 21% as consumers were wary of rising borrowing rates and elevated prices.

Durable goods purchases have been on the decline since mid-2021, falling the past two quarters after exploding in the early days of the Covid pandemic.
“Better news on October inflation didn’t come in time to provide a boost to sentiment, which declined unexpectedly,” Baird added. “The economy may not be in recession, but for households struggling under the weight of higher prices, it certainly feels like it for many.”
Inflation expectations edged higher in the month despite October’s CPI reading, which showed that year-over-year prices rose 7.7%, compared to 8.2% the previous month.
The one-year inflation outlook rose to 5.1%, the highest level since July, while the five-year gauge rose to 3%, the highest since June. Those readings have remained in a tight range for most of the year, starting 2022 respectively at 4.9% and 3.1%.
But those are high by historic terms and come as the Fed has boosted its benchmark interest rate by 3.75 percentage points since March. Friday’s survey shows consumers, whose spending comprises 68% of U.S. GDP, are wary heading into the pivotal holiday shopping season.
“Consumers managed to hold their heads above water earlier this year when gasoline prices were peaking at well above $5 per gallon,” wrote Paul Ashworth, chief North America economist at Capital Economics. “But it will be harder for them to shrug off high interest rates given that the household saving rate is already at an unusually low level.”
The sentiment index reached its historic low in June as worries accelerate that the U.S. already was in recession or heading for one. GDP rose at a 2.6% annualized pace for the third quarter, helping to assuage some anxiety over a contraction after the first two quarters saw negative readings, but many economists still expect the U.S. to hit a recession in 2023.

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The U.K. economy contracted by 0.2% in the third quarter of 2022, signaling what could be the start of a long recession.
However, the third-quarter contraction was less than the -0.5% expected by analysts.
The Bank of England last week forecast the country’s longest recession since records began.

The Bank of England has warned that the U.K. is facing its longest recession since records began a century ago.
Huw Fairclough | Getty Images News | Getty Images

LONDON — The U.K. economy contracted by 0.2% in the third quarter of 2022, signaling what could be the start of a long recession.
The preliminary estimate indicates that the economy performed better than expected in the third quarter, despite the downturn. Economists had projected a contraction of 0.5%, according to Refinitiv.

The contraction does not yet represent a technical recession — characterized by two straight quarters of negative growth — after the second quarter’s 0.1% contraction was revised up to a 0.2% increase.
“In output terms, there was a slowing on the quarter for the services, production and construction industries; the services sector slowed to flat output on the quarter driven by a fall in consumer-facing services, while the production sector fell by 1.5% in Quarter 3 2022, including falls in all 13 sub-sectors of the manufacturing sector,” the Office for National Statistics said in its report Friday.
The Bank of England last week forecast the country’s longest recession since records began, suggesting the downturn that began in the third quarter will likely last deep into 2024 and send unemployment to 6.5% over the next two years.
The country faces a historic cost of living crisis, fueled by a squeeze on real incomes from surging energy and tradable goods prices. The central bank recently imposed its largest hike to interest rates since 1989 as policymakers attempt to tame double-digit inflation.
The ONS said the level of quarterly GDP in the third quarter was 0.4% below its pre-Covid level in the final quarter of 2019. Meanwhile, the figures for September, during which U.K. GDP fell by 0.6%, were affected by the public holiday for the state funeral of Queen Elizabeth II.

U.K. Finance Minister Jeremy Hunt will next week announce a new fiscal policy agenda, which is expected to include substantial tax rises and spending cuts. Prime Minister Rishi Sunak has warned that “difficult decisions” will need to be made in order to stabilize the country’s economy.
“While some headline inflation numbers may begin to look better from here on, we expect prices to remain elevated for some time, adding more pressures on demand,” said George Lagarias, chief economist at Mazars.
“Should next week’s budget prove indeed ‘difficult’ for taxpayers, as expected, consumption will probably be further suppressed, and the Bank of England should begin to ponder the impact of a demand shock on the economy.”
Dutch bank ING sees a cumulative hit to U.K. GDP of 2% by the middle of 2023, which would be comparable to the country’s recession in the 1990s.
ING Developed Markets Economist James Smith said the bank was penciling in a 0.3% contraction in economic activity in the fourth quarter, as consumer spending falls away, which would cement the technical recession.
“As the winter wears on, we also expect to see more strain emerge in manufacturing and construction – both of these sectors suffered noticeably during the 1990s and 2008 recession,” Smith said.
“The fall in manufacturing new orders, linked to falling global consumer demand for goods and rising inventory levels, as well as higher energy costs, point to lower production by early 2023. Likewise, the sharp rise in mortgage rates, and the very early signs of house price declines, point to weaker building activity through next year.”
ING expects the Bank of England’s interest rate hiking path to peak at around 4%, but Smith noted that a lot will depend on next week’s fiscal announcements.
“A lot of the focus understandably will be on how the Chancellor closes the forecasted fiscal deficit in 2026/27. But above all, we’ll be looking for details on how the government will make its energy support less generous from April, something which has the greatest scope to reshape the 2023 outlook,” he said.

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