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    September job gains affirm that the Fed has a long way to go in inflation fight

    September’s nonfarm payrolls report provided both assurance that the jobs market is strong and that the Fed will have to do more to slow it down.
    Worker pay rose 5% on a year-over-year basis in September, down slightly from the 5.2% pace in August but still indicative of an economy where the cost of living is surging.
    Futures pricing Friday pointed to an 82% chance of a 0.75-point move in November, then a 0.5-point increase in December followed by another 0.25-point move in February.

    The Go! Go! Curry restaurant has a sign in the window reading “We Are Hiring” in Cambridge, Massachusetts, July 8, 2022.
    Brian Snyder | Reuters

    September’s jobs report provided both assurance that the jobs market remains strong and that the Federal Reserve will have to do more to slow it down.
    The 263,000 gain in nonfarm payrolls was just below analyst expectations and the slowest monthly gain in nearly a year and a half.

    But a surprising drop in the unemployment rate and another boost in worker wages sent a clear message to markets that more giant interest rate hikes are on the way.
    “Low unemployment used to feel so good. Everybody who seems to want a job is getting a job,” said Ron Hetrick, senior economist at labor force data provider Lightcast. “But we’ve been getting into a situation where our low unemployment rate has absolutely been a significant driver of our inflation.”
    Indeed, average hourly earnings rose 5% on a year-over-year basis in September, down slightly from the 5.2% pace in August but still indicative of an economy where the cost of living is surging. Hourly earnings rose 0.3% on a monthly basis, the same as in August.

    No ‘green light’ for a Fed change

    Fed officials have pointed to a historically tight labor market as a byproduct of economic conditions that have pushed inflation readings to near the highest point since the early 1980s. A series of central bank rate increases has been aimed at reducing demand and thus loosening up a labor market where there are still 1.7 open jobs for every available worker.
    Friday’s nonfarm payrolls report only reinforced that the conditions behind inflation are persisting.

    To financial markets, that meant the near certainty that the Fed will approve a fourth consecutive 0.75 percentage point interest rate hike when it meets again in early November. This will be the last jobs report policymakers will see before the Nov. 1-2 Federal Open Market Committee meeting.

    “Anyone looking for a reprieve that might give the Fed the green light to start to telegraph a pivot didn’t get it from this report,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “Maybe the light got a little greener that they can step back from” two more 0.75 percentage point increases and only one more, Sonders said.
    In a speech Thursday, Fed Governor Christopher Waller sent up a preemptive flare that Friday’s report would do little to dissuade his view on inflation.
    “In my view, we haven’t yet made meaningful progress on inflation and until that progress is both meaningful and persistent, I support continued rate increases, along with ongoing reductions in the Fed’s balance sheet, to help restrain aggregate demand,” Waller said.
    Markets do, however, expect that November probably will be the last three-quarter point rate hike.
    Futures pricing Friday pointed to an 82% chance of a 0.75-point move in November, then a 0.5-point increase in December followed by another 0.25-point move in February that would take the fed funds rate to a range of 4.5%4.75%, according to CME Group data.
    What concerns investors more than anything now is whether the Fed can do all that without dragging the economy into a deep, prolonged recession.

    Pessimism on the Street

    September’s payroll gains brought some hope that the labor market could be strong enough to withstand monetary tightening matched only when former Fed Chairman Paul Volcker slew inflation in the early 1980s with a fund rate that topped out just above 19% in early 1981.
    “It could add to the story of that soft landing that for a while seemed fairly elusive,” said Jeffrey Roach, chief economist at LPL Financial. “That soft landing could still be in the cards if the Fed doesn’t break anything.”
    Investors, though, were concerned enough over the prospects of a “break” that they sent the Dow Jones Industrial Average down more than 500 points by noon Friday.
    Commentary around Wall Street centered on the uncertainty of the road ahead:

    From KPMG senior economist Ken Kim: “Typically, in most other economic cycles, we’d be very happy with such a solid report, especially coming from the labor market side. But this just speaks volumes about the upside-down world that we’re in, because the strength of the unemployment report keeps the pressure on the Fed to continue with their rate increases going forward.”
    Rick Rieder, BlackRock’s chief investment officer of global fixed income, joked about the Fed banning resume software in an effort to cool job hunters: “The Fed should throw another 75-bps rate hike into this mix at its next meeting … consequently pressing financial conditions tighter along the way … We wonder whether it will actually take banning resume software as a last-ditch effort to hit the target, but while that won’t happen, we wonder whether, and when, significant unemployment increases will happen as well.”
    David Donabedian, CIO at CIBC Private Wealth: “We expect the pressure on the Fed to remain high, with continued monetary tightening well into 2023. The Fed is not done tightening the screws on the economy, creating persistent headwinds for the equity market.”
    Ron Temple, head of U.S. equity at Lazard Asset Management: “While job growth is slowing, the US economy remains far too hot for the Fed to achieve its inflation target. The path to a soft landing keeps getting more challenging. If there are any doves left on the FOMC, today’s report might have further thinned their ranks.”

    The employment data left the third-quarter economic picture looking stronger.
    The Atlanta Fed’s GDPNow tracker put growth for the quarter at 2.9%, a reprieve after the economy saw consecutive negative readings in the first two quarters of the year, meeting the technical definition of recession.
    However, the Atlanta Fed’s wage tracker shows worker pay growing at a 6.9% annual pace through August, even faster than the Bureau of Labor Statistics numbers. The Fed tracker uses Census rather than BLS data to inform its calculations and is generally more closely followed by central bank policymakers.
    It all makes the inflation fight look ongoing, even with a slowdown in payroll growth.
    “There is an interpretation of today’s data as supporting a soft landing – job openings are falling and the unemployment rate is staying low,” wrote Citigroup economist Andrew Hollenhorst, “but we continue to see the most likely outcome as persistently strong wage and price inflation that the Fed will drive the economy into at least a mild recession to bring down inflation.”

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    Biden Administration Clamps Down on China’s Access to Chip Technology

    The White House issued sweeping restrictions on selling semiconductors and chip-making equipment to China, an attempt to curb the country’s access to critical technologies.WASHINGTON — The Biden administration on Friday announced sweeping new limits on the sale of semiconductor technology to China, a step aimed at crippling Beijing’s access to critical technologies that are needed for everything from supercomputing to guiding weapons.The moves are the clearest sign yet that a dangerous standoff between the world’s two major superpowers is increasingly playing out in the technological sphere, with the United States trying to establish a stranglehold on advanced computing and semiconductor technology that is essential to China’s military and economic ambitions.The package of restrictions, which was released by the Commerce Department, is designed in large part to slow the progress of Chinese military programs, which use supercomputing to model nuclear blasts, guide hypersonic weapons and establish advanced networks for surveilling dissidents and minorities, among other activities.Alan Estevez, the under secretary of commerce for industry and security, said his bureau was working to prevent China’s military, intelligence and security services from acquiring sensitive technologies with military applications.“The threat environment is always changing, and we are updating our policies today to make sure we’re addressing the challenges posed by the P.R.C. while we continue our outreach and coordination with allies and partners,” he said, referring to the People’s Republic of China.Technology experts said the rules appeared to impose the broadest export controls issued in a decade. While similar to the Trump administration’s crackdown on the telecom giant Huawei, the new rules are far wider in scope, affecting dozens of Chinese firms. And unlike the Trump administration’s approach — which was viewed as aggressive but scattershot — the rules appear to establish a more comprehensive policy that will stop cutting-edge exports to a range of Chinese technology companies and cut off China’s nascent ability to produce advanced chips itself.“It is an aggressive approach by the U.S. government to start to really impair the capability of China to indigenously develop certain of these critical technologies,” said Emily Kilcrease, a senior fellow at Center for a New American Security, a think tank.Companies will no longer be allowed to supply advanced computing chips, chip-making equipment and other products to China unless they receive a special license. Most of those licenses will be denied, though certain shipments to facilities operated by U.S. companies or allied countries will be evaluated case by case, a senior administration official said in a briefing Thursday.It remains to be seen whether the Chinese government will take action in response. Samm Sacks, a senior fellow at Yale Law School who studies technology policy in China, said the new rules could push Beijing to impose restrictions on American companies or firms from other countries that comply with U.S. rules but still want to maintain operations in China.“The question is: Would this new package cross a red line to trigger a response that we haven’t seen before?” she said. “A lot of people are anticipating it will. I think we’ll have to wait and see.”More on the Relations Between Asia and the U.S.Taiwan: American officials are intensifying efforts to build a giant stockpile of weapons in Taiwan in case China blockades the island as a prelude to an attempted invasion, according to current and former officials.North Korea: Pyongyang fired an intermediate range ballistic missile over Japan for the first time since 2017, when Kim Jong-un seemed intent on escalating conflict with Washington. But the international landscape has changed considerably since then.A Broad Partnership: The United States and 14 Pacific Island nations signed an agreement at a summit in Washington, putting climate change, economic growth and stronger security ties at the center of an American push to counter Chinese influence.South Korea: President Yoon Suk Yeol has aligned his country more closely with the United States, but there are limits to how far he can go without angering China or provoking North Korea.The measures come at a particularly sensitive moment for Beijing. Chinese leaders will hold a major political meeting beginning Oct. 16, where leader Xi Jinping is expected to secure a third leadership term, becoming the country’s longest-ruling leader since Mao Zedong.Liu Pengyu, a spokesman for the Chinese Embassy in Washington, said the United States was trying “to use its technological prowess as an advantage to hobble and suppress the development of emerging markets and developing countries.”“The U.S. probably hopes that China and the rest of the developing world will forever stay at the lower end of the industrial chain,” he added.The Chinese government has invested heavily in building up its semiconductor industry, but it still lags behind the United States, Taiwan and South Korea in its ability to produce the most advanced chips. In other fields, like artificial intelligence, China is no longer significantly behind the United States, but those technologies mostly rely on advanced chips that are designed or fabricated by non-Chinese firms.Jack Dongarra, a computer scientist at the University of Tennessee, said some of China’s most advanced supercomputers depended on chips made by California-based Intel or Taiwan Semiconductor Manufacturing Company, which uses U.S. technology in its production process and so would be subject to the new rules.The restrictions limit U.S. exports of high-tech chips called graphic processing units, which are used to power artificial intelligence applications, and place broad limits on chips destined for supercomputers in China. The rules also bar U.S.-based companies that make the equipment used to manufacture advanced logic and memory chips from selling that machinery to China without a license.Perhaps most significant, the Biden administration also imposed broad international restrictions that will prohibit companies anywhere in the world from selling chips used in artificial intelligence and supercomputing in China if they are made with U.S. technology, software or machinery. The restrictions used what is known as the foreign direct product rule, which was last deployed by former President Donald J. Trump to cripple Huawei.Another foreign direct product rule bans a broader range of products made outside the United States with American technology from being sent to 28 Chinese companies that have been placed on an “entity list” over national security concerns.Those companies include Beijing Sensetime Technology Development, a unit of a major Chinese artificial intelligence company, SenseTime. Also included are Dahua Technology, Higon, iFLYTEK, Megvii Technology, Sugon, Tianjian Phytium Information Technology, Sunway Microelectronics and Yitu Technologies, as well as a variety of labs and research institutions linked to universities and the Chinese government.In a briefing with reporters, senior administration officials said the measures would be limited to the most advanced chips and not have a broad commercial impact on private Chinese businesses. But they conceded that the limits could become more restrictive over time, given that technology will begin to outpace the advanced technological standards spelled out in the rules.Industry executives say many Chinese industries that rely on artificial intelligence and advanced algorithms power those abilities with American graphic processing units, which will now be restricted. Those include companies working with technologies like autonomous driving and gene sequencing, as well as the artificial intelligence company SenseTime and ByteDance, the Chinese internet company that owns TikTok.New limits on sales of chip-making equipment are also expected to clamp down on the operations of China’s homegrown chip makers, including Semiconductor Manufacturing International, Yangtze Memory Technologies and ChangXin Memory Technologies.The actual impact of the restrictions will hinge on how the policy is carried out. For most of the measures, the Commerce Department has the discretion to grant companies special licenses to continue selling the restricted products to China, though it said most would be denied.Some Republican lawmakers and China hawks have criticized the department for being too willing to issue such licenses, allowing U.S. companies to continue selling sensitive technology to China even when national security may be at stake.“If you want to stop it, you can just stop it,” said Derek Scissors, a senior fellow at the American Enterprise Institute. “When you create a licensing requirement, you are announcing to the world: We don’t want to stop it. We are just pretending.”With its vast ecosystem of factories, China continues to be a huge and lucrative market for U.S. chip exports. The tiny technologies are crucial to the smartphones, laptops, coffee makers, cars and other goods that Chinese factories pump out for domestic consumption and export to the world.Many American companies have long argued that their sales to China are an important source of revenue that allows them to reinvest in research and development and retain a competitive edge.But doing business with China has become much more fraught in the last few years, as the tensions between the United States and China have morphed into a cold war competition. The Chinese government has sought to blur the line between its defense sector and private industry, drawing on Chinese firms that specialize in fields including artificial intelligence, big data, aerospace technologies and quantum computing to fuel the country’s military modernization.Chinese military drills aimed at intimidating Taiwan, and China’s alignment with Moscow after the Russian invasion of Ukraine, have strengthened the case for technology regulation.Still, industry executives and some analysts argue that cutting China off from foreign chips will accelerate Beijing’s push to develop them itself and cause U.S. companies to lose out to foreign competitors, unless other countries also impose similar restrictions.The Semiconductor Industry Association said Friday that it was assessing the impact of the export controls on the industry and working with companies to ensure compliance.“We understand the goal of ensuring national security and urge the U.S. government to implement the rules in a targeted way — and in collaboration with international partners — to help level the playing field and mitigate unintended harm to U.S. innovation,” it said in a statement.In remarks last month, the Biden administration signaled that it would get tougher on technology regulation. Jake Sullivan, the national security adviser, said the U.S. government’s previous approach, of trying to stay a few generations ahead of competitors, was no longer sufficient.“Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible,” he said.Kevin Wolf, a partner at Akin Gump who led export control efforts during the Obama administration, said the move was “a fundamental shift in the use of export controls” to address broader national security objectives. Since the Cold War, most countries had used export controls more narrowly, focusing on regulating specific items that were necessary to produce or deploy weapons.Mr. Wolf said the new measures were likely to be highly effective in the short and medium term. “How effective they will be over the long term will be a function of whether allies ultimately agree to impose similar controls,” he added.Edward Wong More

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    Hispanic unemployment rate falls sharply in September, but fewer workers join labor force

    The unemployment rate among Hispanic workers dropped sharply in September, but declining labor force participation indicated fewer eligible adults found employment or searched for work.
    The unemployment rate fell to 3.8% from 4.5% in August.
    Labor force participation dipped to 66.1% from 66.8% in August.

    A “Now Hiring” sign is displayed during a job fair for Hispanic professionals in Miami, Florida.
    Marco Bello | Bloomberg | Getty Images

    The unemployment rate among Hispanic workers dropped sharply in September, but that could be due to fewer eligible adults looking for a job.
    Hispanic workers saw their unemployment rate fall to 3.8% from 4.5% in August. Broken down by gender, unemployment declined to 3.2% among Hispanic males over 20 years old and 3.6% among females.

    The decline is much bigger than the one seen at the country level. The government said the overall jobless rate fell to 3.5% from 3.7% in August, its lowest level since July. A total of 263,000 jobs were created last month, less than a Dow Jones forecast of 275,000.

    But Hispanics saw a sharp decline in labor force participation, which tracks how many people are employed or searching for work. It fell to 66.1% from 66.8% in August, indicating fewer individuals are finding employment or searching for work as the employment-to-population ratio tracking the proportion of the population employed dipped to 63.5%.
    “That decline from 4.5% in August to 3.8%, while really significant, has to be tempered by the fact that clearly, Latinx workers withdrew from the workforce,” said Michelle Holder, a distinguished senior fellow at Washington Center for Equitable Growth. Many Hispanic workers do seek employment in some areas of the market heavily affected by Federal Reserve interest rate hikes, she added.

    Lea este artículo en español aquí.

    While Hispanic workers saw the biggest declines on a month-to-month basis, she noted that Black women have still seen the sharpest decline in labor force participation since the start of the pandemic.
    While the decline in participation is a reason for concern, areas of the labor market where Hispanic workers are overrepresented did experience significant gains in September, noted William Spriggs, chief economist of the AFL-CIO. Those sectors included leisure and hospitality and construction where payrolls were up 83,000 and 19,000, respectively.

    But those numbers don’t come without their downsides, he said.
    “This is disturbing because it means Hispanic workers are finding great difficulty moving out of their pockets and the big story of this recovery has been the success of women and Black workers to move out of the trap of just being in low-wage industries,” he said.

    Fluctuations in the employment market tend to show up among Black and Hispanic workers first, Spriggs said, noting that unemployment among Black workers ticked down and labor force participation rose after two months of a concerning trend of rising unemployment and declining participation.
    “The good news for Black workers is in many ways wiped out for Hispanic workers,” he said.
    To be sure, Valerie Wilson, director of the Economic Policy Institute’s program on race, ethnicity and the economy, said individuals should hold off on drawing firm conclusions from one month of data.
    Fluctuations are common in monthly reports and require several consecutive periods of a similar move before one can deduce a trend.
    “It’s still hard to understand whether we’re just seeing volatility in the series because it’s a smaller sample size,” Wilson said.
    — CNBC’s Gabriel Cortes contributed reporting.

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    Here’s where the jobs are for September 2022 – in one chart

    Leisure and hospitality was the standout sector, growing by 83,000 jobs.
    Health care has now returned to its pre-pandemic employment levels, according to the labor department, and hospitals and ambulatory services each added 28,000 jobs in September.

    Job growth remained strong overall in September, but declines in several sectors led to a slowdown compared to hot readings during the summer.
    Leisure and hospitality was the standout sector, growing by 83,000 jobs. The sector has been consistently adding jobs since the Covid restrictions in 2020 shuttered many bars and restaurants. However, the sector is still more than 1 million jobs below its pre-pandemic levels, according to the Labor Department.

    “It is a positive sign to see a sector that has been hit so hard continue its bounce-back with really strong gains here. It is moving closer to its pre-pandemic level, but it’s still 6.7% below where it was back in February 2020. It’s going to take a long time at its current pace to get back there,” said Nick Bunker, economic research director for North America at the Indeed Hiring Lab.
    “That’s very clearly a part of the economy that can add more workers, but I think we are at a point now where we can say that leisure and hospitality’s share of employment in the U.S. labor market is probably going to be lower than it was before the pandemic,” he added.
    Health care and social assistance also had a strong month, adding more than 75,000 jobs. Health care has now returned to its pre-pandemic employment levels, according to the labor department, and hospitals and ambulatory services each added 28,000 jobs in September.
    The Labor Department includes those sectors in a broader sector, which includes private education, and that larger group added 90,000 jobs for the month.
    But there were several areas that shed jobs last month, contributing to the slowdown in job gains. Government was the biggest laggard, dropping 25,000 jobs. Retail trade and transportation and warehousing combined to shed 9,000 jobs, reflecting a weakness in consumer spending on goods.

    Bunker said the slowdown in retail appeared to be a matter of hiring slowing, as opposed to widespread layoffs, and that the government number could have been impacted by seasonal adjustments.
    Strength in the construction and manufacturing areas, which added 19,000 and 22,000 jobs respectively, could cool some fears of an imminent recession in the U.S. Those areas have continued to add jobs even as the housing market and industrial survey data has suggested those sectors are seeing a slowdown in growth.

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    Unemployment rate falls to 3.5% in September, payrolls rise by 263,000 as job market stays strong

    Nonfarm payrolls increased 263,000 for the month, short of the Dow Jones estimate for 275,000.
    The unemployment rate was 3.5%, down 0.2 percentage point as the labor force participation rate edged lower.

    Job growth fell just short of expectations in September and the unemployment rate declined despite efforts by the Federal Reserve to slow the economy, the Labor Department reported Friday.
    Nonfarm payrolls increased 263,000 for the month, compared to the Dow Jones estimate of 275,000.

    The unemployment rate was 3.5% vs the forecast of 3.7% as the labor force participation rate edged lower to 62.3% and the size of the labor force decreased by 57,000. A more encompassing measure that includes discouraged workers and those holding part-time jobs for economic reasons saw an even sharper decline, to 6.7% from 7%.
    September’s payroll figure marked a deceleration from the 315,000 gain in August and tied for the lowest monthly increase since April 2021.
    In the closely watched wage numbers, average hourly earnings rose 0.3% on the month, in line with estimates, and 5% from a year ago, an increase that is still well above the pre-pandemic norm but 0.1 percentage point below the forecast.
    Stock market futures moved lower after the release while government bond yields rose. Investors were looking at the numbers for an indication of how the Federal Reserve will react as it tries to tamp down inflation.
    “This puts the nail in the coffin for another 75 [basis point rate increase] in November,” said Jeffrey Roach, chief economist at LPL Financial. A basis point is 0.01 percentage point.

    From a sector view, leisure and hospitality led the gains with an increase of 83,000, a gain that still left the industry 1.1 million jobs short of its February 2020 pre-pandemic levels.
    Elsewhere, health care added 60,000, professional and business services rose 46,000 and manufacturing contributed 22,000. Construction was up 19,000 and wholesale trade was up 11,000.
    A drop of 25,000 in government jobs was a big contributor to the report missing expectations. Hiring at the state and local level is highly seasonal, so the decline points to a report that otherwise was largely in line with expectations and shows a resilient jobs market.
    Also on the negative side, financial activities and transportation and warehousing both saw losses of 8,000 jobs.
    The report comes amid a months-long Fed effort to bring down inflation running near its highest annual rate in more than 40 years. The central bank has raised rates five times this year for a total of 3 percentage points and is expected to continue hiking through at least the end of the year.
    Despite the increases, job growth had remained relatively strong as companies face a massive mismatch between supply and demand that has left about 1.7 job openings for every available worker. That in turn has helped drive up wages, though the increase in average hourly earnings has fallen well short of the inflation rate, which most recently was at 8.3%.
    Fed officials including Chairman Jerome Powell have said they expect the rate hikes to inflict “some pain” on the economy. Federal Open Market Committee members in September indicated they expect the unemployment rate to rise to 4.4% in 2023 and hold around that level before dropping down to 4% over the long run.
    Markets widely expect the Fed to continue the pace of its rate hikes with another 0.75 percentage point increase in November. Traders assigned a 78% chance of a three-quarter point move following the jobs numbers, and expect another half-point increase in December that would take the federal funds rate to a range of 4.25%-4.5%.
    This is breaking news. Please check back here for updates.

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    Wharton’s Jeremy Siegel says today’s biggest threat isn’t inflation — it’s recession

    The U.S. Federal Reserve has been raising rates too quickly, and recession risks will be “extremely” high if it continues to do so, said Jeremy Siegel, professor emeritus of finance at the Wharton School of the University of Pennsylvania.
    “They should have started tightening much, much much earlier,” he told CNBC’s “Street Signs Asia” on Friday. “But now I fear that they’re slamming on the brakes way too hard.”
    Not everyone agrees. Thomas Hoenig, former president of the Federal Reserve Bank of Kansas City, said rates need to go up “much higher.”

    The U.S. Federal Reserve has been raising rates too quickly, and recession risks will be “extremely” high if it continues to do so, said Jeremy Siegel, professor emeritus of finance at the Wharton School of the University of Pennsylvania.
    “They should have started tightening much, much much earlier,” he told CNBC’s “Street Signs Asia” on Friday. “But now I fear that they’re slamming on the brakes way too hard.”

    Siegel said he was one of the first to warn of the Fed’s “inflationary policies” in 2020 and 2021, but “the pendulum has swung too far in the other direction.”
    “If they stay as tight as they say they will, continuing to hike rates through even the early part of next year, the risks of recession are extremely high,” he said.

    Most of the inflation is behind us, and then the biggest threat is recession, not inflation, today.

    Jeremy Siegel
    Wharton professor

    Official data, which typically lags by a month, may not immediately show the changes happening in the real economy, he said. “Most of the inflation is behind us, and then the biggest threat is recession, not inflation, today.”
    Siegel said he thinks interest rates are high enough that they could bring inflation down to 2%, and the terminal rate, or end point, should be between 3.75% and 4%.
    In September, the Fed raised benchmark interest rates by another three-quarters of a percentage point to a range of 3%-3.25%, the highest it has been since early 2008. The central bank also signaled that the terminal rate could be as high as 4.6% in 2023.

    “I think that that is way, way too high — given the policy lags, that really would force a contraction,” he said.
    According to the CME Group’s FedWatch tracker of Fed funds futures bets, the probability that the target range of rates will reach 4.5% to 4.75% in February next year is at 58.3%.

    If it were up to him, Siegel said, he would hike rates by half a point in November, then wait and see. If commodity prices start to rise and money supply increases, the Fed would have to do more.
    “But my feeling is that when I look at sensitive commodity prices, asset prices, housing prices, even rental prices, I see declines, not increases,” he said.
    But not everyone agrees. Thomas Hoenig, former president of the Federal Reserve Bank of Kansas City, said rates need to be higher for longer.

    “My own view is you’ve got to get the rate up. If inflation is 8%, you need to get the rate up much higher,” he told CNBC’s “Street Signs Asia.”
    “They need to stay there and not back off of that too soon to where they reignite inflation, say in the second quarter [of] 2023 or the third quarter,” he added.
    — CNBC’s Jihye Lee contributed to this report.

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    Global Fallout From Rate Moves Won’t Stop the Fed

    The Federal Reserve, like many central banks, sets policy with an eye on the domestic economy. Its battle to control prices is causing pain abroad.The Federal Reserve has embarked on an aggressive campaign to raise interest rates as it tries to tame the most rapid inflation in decades, an effort the central bank sees as necessary to restore price stability in the United States.But what the Fed does at home reverberates across the globe, and its actions are raising the risks of a global recession while causing economic and financial pain in many developing countries.Other central banks in advanced economies, from Australia to the eurozone, are also lifting rates rapidly to fight their inflation. And as the Fed’s higher interest rates attract money to the United States — pumping up the value of the dollar — emerging-market economies are being forced to raise their own borrowing costs to try to stabilize their currencies to the extent possible.Altogether, it is a worldwide push toward more expensive money unlike anything seen before in the 21st century, one that is likely to have serious ramifications.Higher rates slow inflation by cooling consumer demand and allowing supply to catch up, paving the way for more moderate price increases. But in the process, they slow down hiring, weaken wage growth, prompt job losses and ripple through financial markets in sometimes disruptive ways.How much pain today’s moves will ultimately cause remains unclear: So many countries are raising rates so quickly — and so in sync — that it is difficult to determine how intense any slowdown will be once it takes full effect. Monetary policy takes months or years to kick in completely.But many economists and several international bodies have warned that there’s a pronounced danger or overdoing it, including a United Nations agency that warned the damage could be particularly acute in poorer nations. Developing economies had already been dealing with a cost-of-living crisis because of soaring food and fuel prices, and now their American imports are growing steadily more expensive as the dollar marches higher.The Fed’s moves have spurred market volatility and worries about financial stability, as higher rates elevate the value of the U.S. dollar, making it harder for emerging-market borrowers to pay back their dollar-denominated debt.It is a recipe for globe-spanning turmoil and even recession. Despite that, the Fed is poised to continue raising interest rates. That’s because the Fed, like central banks around the world, is in charge of domestic economy goals: It’s supposed to keep inflation slow and steady while fostering maximum employment. While occasionally called “central banker to the world” because of the dollar’s foremost position, the Fed goes about its day-to-day business with its eye squarely on America.“Of course, as a human, you care about the pain other countries are experiencing — but as a policymaker, I have a single tool,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said in an interview on Tuesday. “It’s a blunt tool, even for the U.S. goals of full employment and price stability.”Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Biden Visits IBM to Promote Investments in U.S. Semiconductor Production

    President Biden traveled to Poughkeepsie, N.Y., to connect a $20 billion investment by IBM to the bipartisan bill meant to spur production of critical microchips.During his visit to IBM’s Hudson Valley facility in New York, President Biden highlighted the CHIPS and Science Act that provides subsidies to companies that sign up to jump-start domestic production of semiconductor chips.Erin Schaff/The New York TimesPresident Biden visited the Hudson Valley of New York on Thursday to tour an IBM facility after the company announced it would invest $20 billion across the region to increase its production of semiconductors and develop advanced technologies, including artificial intelligence and quantum computing.Mr. Biden has ramped up his travel schedule to promote the bipartisan legislative achievements that his administration has guided as the November midterm elections approach. At the company’s campus in Poughkeepsie, N.Y., he highlighted an industrial bill he signed in August that provides subsidies to companies that sign up to jump-start domestic production of semiconductor chips.The White House has held up the law as a way to keep up with China and other countries — including South Korea, Japan, India and Germany — that offer subsidies for the production of semiconductors, which are critical components in everything from smartphones to military technology.“More is going to change in the next 10 years than it has in the last 40,” Mr. Biden said. “Where in God’s name is it written that we can’t be the manufacturing hub of the world? There’s a lot of reasons to be optimistic.”The legislation, called the CHIPS and Science Act, contains $52 billion in subsidies and tax credits for companies that manufacture chips in the United States, with more than half of the amount dedicated to helping companies build facilities for making, assembling and packaging some of the world’s more advanced chips.In a news release before Mr. Biden’s visit, IBM hailed the bill for its effort to “secure supply of next-generation chips for today’s computers and artificial intelligence platforms as well as fuel the future of quantum computing by accelerating research, expanding the quantum supply chain, and providing more opportunities for researchers to explore business and science applications of quantum systems.”IBM’s announcement came two days after Micron Technology, the Idaho-based computing company, announced that it planned to spend as much as $100 billion over the next two decades or more to build a computer chip factory complex in upstate New York.“There is no doubt that without the CHIPS Act, we would not be here today,” Sanjay Mehrotra, the chief executive of Micron, said on Tuesday.During his remarks, Mr. Biden emphasized that the law would bolster American competitiveness in research and technology at a time when other countries have pulled ahead.“We’re going to make sure that any company that uses federal research and development funding to invest in new technologies has to make the product in America,” Mr. Biden said to applause, adding later: “It matters. This is about economic security, folks. It’s about national security. It’s about good-paying jobs you can raise a family on.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-ok2gjs{font-size:17px;font-weight:300;line-height:25px;}.css-ok2gjs a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.Administration officials hope that the bill’s bipartisan support, coupled with a windfall of pledged investment from large technology companies, is the sort of accomplishment that could appeal to voters ahead of the midterms. Seventeen Republicans voted for the bill in the Senate, while 24 Republicans supported it in the House.At one point, Mr. Biden, citing news reports, accused the Chinese government of lobbying in Congress against the law. “The Chinese Communist Party actively lobbied against the CHIPS and Science Act that I’d been pushing in the United States Congress,” Mr. Biden said. “Unfortunately, some of our friends on the other team bought it.”Representative Sean Patrick Maloney of New York, the chairman of House Democrats’ campaign arm, accompanied the president on his trip, as did Paul Tonko, and Pat Ryan, two Democratic congressmen from New York. Gov. Kathy Hochul, a Democrat, greeted Mr. Biden when he arrived in New York.Mr. Biden’s visit was also meant to bolster the fortunes of two Democrats facing tight races in next month’s elections. Mr. Maloney is facing a challenge from Assemblyman Michael Lawler in his district, which includes the Hudson Valley.Mr. Ryan, who won a special House election in August, is in a tight race against Assemblyman Colin Schmitt of New Windsor for the swing-district seat. The special election was seen as a potential test of the impact that June’s Supreme Court decision that ended the constitutional right to abortion might have on the midterm elections.After leaving Poughkeepsie, Mr. Biden traveled to Red Bank, N.J., to participate in a reception for the Democratic National Committee. On Thursday evening, he attended another reception for the Democratic Senatorial Campaign Committee. More