Economy

Even as inflation measures have eased, the high price of goods and services across the U.S. economy continues to pose a burden for individuals, businesses and policymakers.
Since prices started spiking in early 2021, food inflation has surged 22%. Eggs are up 87%, auto insurance has soared nearly 47% and gasoline, though on a downward trajectory recently, is still up 16%.
So far, rising debt hasn’t proved to be a major problem, but it’s getting there. The current debt delinquency rate is at 2.74%, the highest in nearly 12 years.
Amid the swirling currents of the good news/bad news inflation picture, the Fed has an important interest rate decision to make at its Nov. 6-7 policy meeting.

A family shops for Halloween candy at a Walmart Supercenter on October 16, 2024 in Austin, Texas. 
Brandon Bell | Getty Images

Just because the Federal Reserve is nearing its inflation goal doesn’t mean the problem is solved, as the high price of goods and services across the U.S. economy continues to pose a burden for individuals, businesses and policymakers.
Recent price reports on goods and services, despite being a bit stronger than expected, indicate that the rate of inflation over the past year is getting close to the central bank’s 2% target.

In fact, Goldman Sachs recently estimated that when the Bureau of Economic Analysis later this month releases its figures on the Fed’s favorite price measure, the inflation rate could be close enough to get rounded down to that 2% level.
But inflation is a mosaic. It can’t be captured fully by any individual yardstick, and by many metrics is still well above where most Americans, and in fact some Fed officials, feel comfortable.
Sounding like many of her colleagues, San Francisco Fed President Mary Daly last Tuesday touted the easing of inflation pressures but noted that the Fed isn’t declaring victory nor is it eager to rest on its laurels.
“Continued progress towards our goals is not guaranteed, so we must stay vigilant and intentional,” she told a group gathered at the New York University Stern School of Business.

Inflation is not dead

Daly began her talk with an anecdote of a recent encounter she had while walking near her home. A young man pushing a stroller and walking a dog called out, “President Daly, are you declaring victory?” She assured him she was not waving any banners when it comes to inflation.

But the conversation encapsulated a dilemma for the Fed: If inflation is on the run, why are interest rates still so high? Conversely, if inflation still hasn’t been whipped — those who were around in the 1970s might remember the “Whip Inflation Now” buttons — why is the Fed cutting at all?
In Daly’s eyes, the Fed’s half percentage point reduction in September was an attempt at “right-sizing” policy, to bring the current rate climate in line with inflation that is well off its peak of mid-2022 at the same time as there are signs the labor market is softening.
As evidenced by the young man’s question, convincing people that inflation is easing is a tough sell.
When it comes to inflation, there are two things to remember: the rate of inflation, which is the 12-month view that garners headlines, and the cumulative effects that a more than three-year run has had on the economy.
Looking at the 12-month rate provides only a limited view.

The annual rate of CPI inflation was 2.4% in September, a vast improvement over the 9.1% top in June 2022. The CPI measure draws the bulk of public focus but is secondary to the Fed, which prefers the personal consumption expenditures price index from the Commerce Department. Taking the inputs from the CPI that feed into the PCE measure led Goldman to its conclusion that the latter measure is just a few hundredths of a percentage point from 2%.
Inflation first passed the Fed’s 2% objective in March 2021 and for months was dismissed by Fed officials as the “transitory” product of pandemic-specific factors that would soon recede. Fed Chair Jerome Powell, in his annual policy speech at the Jackson Hole, Wyoming summit this August, joked about “the good ship Transitory” and all the passengers it had in the early days of the inflation run-up.
Obviously, inflation wasn’t transitory, and the all-items CPI reading is up 18.8% since then. Food inflation has surged 22%. Eggs are up 87%, auto insurance has soared almost 47% and gasoline, though on a downward trajectory these days, is still up 16% from then. And, of course, there’s housing: The median home price has jumped 16% since Q1 of 2021 and 30% from the beginning of the pandemic-fueled buying frenzy.

Finally, while some broad measures of inflation such as CPI and PCE are pulling back, others show stubbornness.
For instance, the Atlanta Fed’s measure of “sticky price” inflation — think rent, insurance and medical care — was still running at a 4% rate in September even as “flexible CPI,” which includes food, energy and vehicle costs, was in outright deflation at -2.1%. That means that prices that don’t change a lot are still high, while those that do, in this particular case gasoline, are falling but could turn the other way.

The sticky-price measure also brings up another important point: “Core” inflation that excludes food and energy prices, which fluctuate more than other items, was still at 3.3% in September by the CPI measure and 2.7% in August as gauged by the PCE index.
While Fed officials lately have been talking more about headline numbers, historically they’ve considered core a better measure of long-run trends. That makes the inflation data even more troublesome.

Borrowing to pay higher prices

Prior to the 2021 spike, American consumers had grown accustomed to negligible inflation. Even so, during the current run, they have continued to spend, spend and spend some more despite all the grumbling about the soaring cost of living.
In the second quarter, consumer spending equaled close to $20 trillion at an annualized pace, according to the Bureau of Economic Analysis. In September, retail sales increased a larger-than-expected 0.4%, with the group that feeds directly into gross domestic product calculations up 0.7%. However, year-over-year spending increased just 1.7%, below the 2.4% CPI inflation rate.
A growing portion of spending has come through IOUs of various forms.
Household debt totaled $20.2 trillion through the second quarter of this year, up $3.25 trillion, or 19%, from when inflation started spiking in Q1 of 2021, according to Federal Reserve data. In the second quarter of this year, household debt rose 3.2%, the biggest increase since Q3 of 2022.

So far, the rising debt hasn’t proved to be a major problem, but it’s getting there.
The current debt delinquency rate is at 2.74%, the highest in nearly 12 years though still slightly below the long-term average of around 3% in Fed data going back to 1987. However, a recent New York Fed survey showed that the perceived probability of missing a minimum debt payment over the next three months jumped to 14.2% of respondents, the highest level since April 2020.
And it’s not just consumers who are racking up credit.
Small business credit card usage has continued to tick higher, up more than 20% compared to pre-pandemic levels and nearing the highest in a decade, according to Bank of America. The bank’s economists expect the pressure could ease as the Fed lowers interest rates, though the magnitude of the cuts could come into question if inflation proves sticky.
In fact, the one bright spot of the small business story relative to credit balances is that they actually haven’t kept up with the 23% inflation increase going back to 2019, according to BofA.
Broadly speaking, though, sentiment is downbeat at small firms. The September survey from the National Federation of Independent Business showed that 23% of respondents still see inflation as their main problem, again the top issue for members.

The Fed’s choice

Amid the swirling currents of the good news/bad news inflation picture, the Fed has an important decision to make at its Nov. 6-7 policy meeting.
Since policymakers in September voted to lower their baseline interest rate by half a percentage point, or 50 basis points, markets have acted curiously. Rather than price in lower rates ahead, they’ve begun to indicate a higher trajectory.
The rate on a 30-year fixed mortgage, for instance, has climbed about 40 basis points since the cut, according to Freddie Mac. The 10-year Treasury yield has moved up by a similar amount, and the 5-year breakeven rate, a bond market inflation gauge that measures the 5-year government note against the Treasury Inflation Protected Security of the same duration, has moved up about a quarter point and recently was at its highest level since early July.
SMBC Nikko Securities has been a lone voice on Wall Street encouraging the Fed to take a break from cuts until it can gain greater clarity about the current situation. The firm’s position has been that with stock market prices eclipsing new records as the Fed has shifted into easing mode, softening financial conditions threaten to push inflation back up. (Atlanta Fed President Raphael Bostic recently indicated that a November pause is a possibility he’s considering.)
“For Fed policymakers, lower interest rates are likely to further ease financial conditions, thereby boosting the wealth effect through higher equity prices. Meanwhile, a fraught inflationary backdrop should persist,” SMBC chief economist Joseph LaVorgna, who was a senior economist in the Donald Trump White House, wrote in a note Friday.
That leaves folks like the young man who Daly, the San Francisco Fed president, encountered uneasy about the future and hinting whether the Fed perhaps is making a policy mistake.
“I think we can move towards [a world] where people have time to catch up and then get ahead,” Daly said during her talk in New York. “That is, I told the young father on the sidewalk, my version of victory, and that’s when I will consider the job done.” More

NEW YORK (Reuters) -Four accounts on crypto-based prediction market Polymarket that placed large bets on former President Donald Trump winning the 2024 election, and have been the subject of much online speculation, are owned by non-Americans or a non-American, according to a source familiar with the matter on Friday.Opinion polls indicate a likely close match between Trump and Vice President Kamala Harris in the vote on Nov. 5. However, the odds have diverged on Polymarket, with Trump pulling strongly ahead at a 60% chance of winning versus Harris on 40%.The trade was driven by four accounts that placed more than $30 million worth of bets, according to the source, confirming an earlier story in the Wall Street Journal.Political pundits and social media users have questioned whether specific high-profile Americans could be behind the moves.But Polymarket does not allow Americans to make U.S. election bets on the exchange, and the source confirmed that Polymarket’s users are international. The source said the company certifies all of its large traders to ensure they are not logging in via VPNs to obscure which country they are in.Reuters could not immediately determine if the four accounts represent a single trader or many.Given the size and impact of the bets, Polymarket is investigating the activity in partnership with outside experts, the person said, confirming the Wall Street Journal’s reporting. A $30 million bet on Trump on Polymarket would be equivalent to about 1% of trading volume on the platform related to the presidential race.Americans have faced steep restrictions on betting on U.S. elections online. The Commodity Futures Trading Commission has previously rejected applications to offer contracts or derivatives that allow Americans to bet on elections.CFTC Chairman Rostin Behnam said in a September 2023 statement that such event contracts would effectively turn the agency into an “election cop,” a duty for which the CFTC lacked a mandate.”It makes sense for the CFTC to have authority to combat fraud, manipulation, and false reporting in underlying commodity markets,” Behnam said at the time. “But it is impractical for the CFTC to combat them in the underlying market here – a political contest.”Proponents argued the contracts could be a valuable new financial tool to provide insight on the future.In November 2023, Kalshi, another betting exchange, sued the CFTC over its ban on U.S. election betting. A federal appeals court sided with Kalshi on Oct. 2, paving the way for Americans to start trading on political races just one month ahead of the election.Kalshi has Trump at 57% and Harris at 43%.In an emailed statement, Kalshi said: “Our stance on Trump’s surge in odds is that it’s all part of normal market activity. Trump is simply gaining popularity, and prediction markets aggregate information from a wider audience at a faster pace than polls.” The CFTC did not respond to requests for comment. More

In the note, the analysts say that with recent positive economic data pushing the 10-year Treasury yield into what they define as the “Soft Landing Zone,” investors may see stabilization in yields even as the economy avoids recession.The “Soft Landing Zone” refers to a trading range between 3.80% and 4.83% for the 10-year yield. This range captures scenarios where inflation trends toward the Federal Reserve’s 2% target, and unemployment stays near its current levels, reflecting neither overheating nor severe economic contraction. As BCA’s analysts note, in such a scenario, the Fed’s easing of monetary policy would continue, but without a full-blown recession requiring aggressive cuts.Looking ahead over the next year, BCA forecasts that Treasury yields will gradually decline if the economy follows the Fed’s projections. Specifically, the 2-year Treasury yield could fall to 3.33%, the 5-year to 3.52%, and the 10-year to 3.84%, with the 30-year settling around 4.27%. These projections assume moderate easing by the Fed, with the federal funds rate drifting down to 3.625% by the end of the period.A soft landing would provide some relief to bondholders by reducing the upward pressure on yields, which had climbed amid inflation concerns and uncertainty about the Fed’s trajectory. This scenario offers a favorable environment for bond investors, especially those maintaining positions with longer duration. As per BCA, positioning portfolios above the benchmark duration and holding steepener trades (such as the 2-year/10-year Treasury curve) could be advantageous in anticipation of a soft-landing outcome.However, the note underscores that risks remain. If the Fed adopts a hawkish approach even in a soft-landing environment—perhaps by pausing rate cuts after an initial easing—the upper end of the yield curve could remain elevated. In that case, the 10-year yield might touch 4.63%, and the 30-year yield could reach 4.96%, near the boundaries of what BCA refers to as the “Inflation Scare Zone.”The analysts stress on the importance of being prepared for different outcomes. While they assign a low probability to an inflation resurgence, they warn that any sign of persistent inflation could push yields higher. Similarly, if the labor market weakens more than expected, Treasury yields might fall into the “Recession Scare Zone,” where deeper Fed cuts would be necessary. More

While inflation has retreated in many economies, the bank argues that now is not the time to become complacent. Recent developments such as faster-than-expected central bank easing, rising commodity prices, and persistent inflationary pressures point to the possibility of higher inflation ahead.This has already been reflected in the markets, with the US 5-year inflation swap posting its largest rise since early 2023 and United States 10-Year yields climbing more than 50 basis points in just a few weeks.In a note released Monday, Deutsche Bank outlined five key reasons why inflation risks are still rising.1) Faster-than-expected monetary easing: Deutsche Bank highlights that major central banks, including the Federal Reserve and the European Central Bank (ECB), have been more aggressive in easing monetary policy than expected.The Fed, for instance, cut rates by 50 basis points in September, and the ECB is expected to follow suit in October.”Although these decisions are understandable in the context of lower headline inflation, historical experience says that this is precisely the time to be cautious on inflation, given policy is becoming less restrictive.”2) Geopolitical tensions driving commodity prices higher: The recent uptick in commodity prices, driven by the geopolitical crisis in the Middle East and China’s economic stimulus, has also contributed to mounting inflation risks.Brent crude prices, for example, surged after renewed missile attacks between Iran and Israel, while China’s stimulus measures have boosted the prices of industrial metals like copper.As a result, “this uptick in commodity prices has taken away a source of disinflationary pressure that had been in place over the summer,” Deutsche Bank notes.3) Stronger-than-expected US economic data: Contrary to fears of a slowdown, recent US economic data has been stronger than anticipated. Nonfarm payrolls jumped by 254,000 in September, while GDP growth is projected at 3.2% for Q3.“Much as the stronger news on growth is welcome, it also means that economic demand and inflation is likely to be stronger than it would otherwise have been,” Deutsche Bank’s team cautions.4) Persistent core inflation pressures: Last week’s US CPI report showed that core inflation was running at its fastest pace in six months, rising by 0.31%.More troubling is the rise in the “sticky” categories of inflation, which Deutsche strategists point out could lead to inflation staying higher for longer.For example, the Atlanta Fed’s ‘sticky CPI’ measure saw a 0.32% gain, the sharpest in five months.5) Rising money supply growth: Lastly, money supply growth has also picked up recently, with M2 in the US growing by 2% year-on-year in August, the highest rate since September 2022.In the Euro Area, M3 money supply growth hit 2.9%, the highest since January 2023.“Although money supply growth is not the only determinant of inflation and it is rising from a low level, we saw in the post-pandemic period that it was a strong leading indicator that offered an advance signal that inflation could move higher again,” strategists said.In sum, even though inflation has eased to target levels or below in some regions, the recent shift toward monetary easing means investors should stay vigilant, Deutsche Bank said in the note.Geopolitical tensions and rising commodity prices could push inflation higher again. Over the past six weeks, growing concerns among investors highlighted the increasing risk of inflation, which could have significant market implications if it resurfaces. More

As per analysts at BCA Research, despite the recent positive headlines around job creation, it’s too early to declare a decisive turning point in the labor market’s trajectory. “We assign a 60% chance that the US will enter a recession over the next 12 months, with the downturn likely to begin in the first half of 2025,” the analysts said.This cautious stance contrasts with the more optimistic projections held by many, reflecting a belief that the labor market’s apparent strength may not be as solid as it seems.Recent job reports, including a stronger-than-expected September payrolls figure, have spurred discussions of a soft landing—a scenario in which the U.S. economy slows down without tipping into recession. However, BCA cautions against reading too much into these gains.The note flags that while headline numbers suggest improvement, deeper scrutiny reveals anomalies, such as irregular seasonal adjustments and weak underlying trends like a declining workweek length and falling aggregate hours worked. These discrepancies suggest that the labor market could experience reversals in the months ahead.One of the critical distinctions BCA analysts make is between coincident and leading labor indicators. While payroll growth and unemployment rates—a focus of many reports—remain strong, these are coincident indicators, meaning they often hold steady even as the economy starts to contract. Leading indicators, however, paint a more concerning picture. BCA points to troubling signs, including weakening employment components of key purchasing manager indexes and a sharp decline in perceptions of job availability, suggesting labor market stress ahead​.Moreover, BCA flags that job openings—a crucial gauge of labor demand—remain an area of concern. Although official data from the Job Openings and Labor Turnover Survey showed a rise in August, the longer-term trend is one of softening. New job openings on platforms like Indeed have been on the decline, while hiring at large firms has cooled and temporary employment continues to shrink. These indicators suggest that while companies are not yet engaging in large-scale layoffs, they have become increasingly reluctant to hire, often a precursor to more severe labor market deterioration​.BCA underscores that the future of the labor market will largely hinge on consumer spending. Income growth, which has steadily decelerated, poses a risk. While disposable income increased by 3.1% year-on-year in August, wage growth has slowed, and the pool of available workers has almost fully reabsorbed those who left the workforce during the pandemic. Compounding this, high mortgage rates are likely to weaken the housing market further, curtailing residential investment—a reliable early indicator of economic downturns.In terms of broader economic implications, BCA is cautious about the prospect of a credit-driven spending boom. Despite recent increases in home equity loan activity, overall consumer credit growth has slowed, with delinquency rates rising across credit card and auto loans. Banks, in turn, have tightened lending standards, which is likely to suppress consumer spending further and amplify the slowdown in income growth. More

Mira Murati, former chief technology officer at OpenAI, is raising funds from venture capitalists for her new AI startup, according to sources familiar with the matter.The new company aims to build AI products based on proprietary models, said one of the sources who requested anonymity to discuss private matters. It is not clear if Murati will assume the CEO role at the new venture.A representative for Murati declined to comment.While the talks are in the early stages, Murati’s new venture could raise over $100 million given her reputation and the capital needed to train proprietary models, one of the sources said, cautioning that the figures have not been finalized.Barret Zoph, a prominent researcher who left OpenAI on the same day as Murati in late September, could also get involved in the new venture, the sources added. Zoph did not respond to requests for comment.The Information previously reported that Zoph is planning a new startup and that Murati has been recruiting OpenAI employees to join her new venture.Murati at OpenAI spent over six years spearheading transformative projects like ChatGPT and DALL-E. She was a key figure in OpenAI’s multibillion-dollar partnership with Microsoft (NASDAQ:MSFT), its largest financial backer.Murati’s meteoric rise at OpenAI has cemented her name as one of the most prominent executives in the fledgling field of artificial intelligence. Murati joined OpenAI in June 2018 and was promoted to CTO in May 2022, according to her LinkedIn profile. Prior to OpenAI, she worked at augmented reality startup Leap Motion and Tesla (NASDAQ:TSLA).She frequently appeared alongside OpenAI CEO Sam Altman as the public face of the ChatGPT maker. When OpenAI in May launched its GPT-4o model, which is capable of having realistic voice conversations, Murati led the presentation.Her abrupt resignation in late September marked the latest high-profile exit from the ChatGPT maker as the company undergoes major governance structure changes, including removing the control of the non-profit board. Murati, who briefly served as interim CEO last year when Altman was ousted by the non-profit board, cited a desire for personal exploration for her departure. Murati joins a growing list of former OpenAI executives launching startups, including rivals such as Anthropic and Safe Superintelligence. More

WASHINGTON (Reuters) -The U.S. budget deficit grew to $1.833 trillion for fiscal 2024, the highest outside of the COVID era, as interest on the federal debt exceeded $1 trillion for the first time and spending grew for the Social Security retirement program, health care and the military, the Treasury Department said on Friday.The deficit for the year ended Sept. 30 was up 8%, or $138 billion, from the $1.695 trillion recorded in fiscal 2023. It was the third-largest federal deficit in U.S. history, after the pandemic relief-driven deficits of $3.132 trillion in fiscal 2020 and $2.772 trillion in fiscal 2021.The fiscal 2023 deficit had been reduced by the reversal of $330 billion of costs associated with President Joe Biden’s student loan program after it was struck down by the U.S. Supreme Court. It would have topped $2 trillion without this anomaly.The sizable fiscal 2024 budget gap of 6.4% of gross domestic product, up from 6.2% a year earlier, could pose problems for Vice President Kamala Harris’ arguments ahead of the Nov. 5 presidential election that she would be a better fiscal steward than Republican opponent Donald Trump.A fiscal think-tank, the Committee for a Responsible Federal Budget, has estimated that Trump’s plans would pile up $7.5 trillion in new debt, more than twice the $3.5 trillion envisaged from Harris’ proposals.White House budget director Shalanda Young emphasized the strong growth in the U.S. economy and the Biden administration’s investments in clean energy, infrastructure and advanced manufacturing.”This Administration has done this while maintaining a commitment to fiscal responsibility by ensuring the wealthiest among us and large corporations pay their fair share and cutting wasteful spending on special interests,” Young said in a statement, referring to plans by Biden and Harris to raise taxes on these groups.U.S. receipts for the 2024 fiscal year hit a record $4.919 trillion, up 11%, or $479 billion, from a year earlier, as individual non-withheld and corporate tax collections grew. Fiscal 2024 outlays rose 10%, or $617 billion, to $6.752 trillion.INTEREST COSTSThe biggest driver of the year’s deficit was a 29% increase in interest costs for Treasury debt to $1.133 trillion due to a combination of higher interest rates and more debt to finance. The total exceeded outlays for the Medicare healthcare program for seniors and for defense spending.But a senior Treasury official said the interest costs as a share of GDP reached 3.93%, below the 1991 record of 4.69% but the highest percentage since 4.01% in December 1998.The weighted average interest rate on federal debt was 3.32% in September, up 35 basis points from a year earlier, but down from 3.35% from August, marking the first monthly decline since January 2022.Other drivers of increased outlays for the fiscal year included Social Security, up 7% to $1.520 trillion, Medicare, up 4% to $1.050 trillion, and military programs, up 6% to $826 billion.For September, the government reported a $64 billion surplus, compared to a $171 billion deficit in September 2023, but the improvement was largely due to calendar adjustments for benefit payments. Without these, there would have been a $16 billion deficit in September 2024.Reported receipts were a record for September at $528 billion, up 13% from a year earlier, while outlays were $463 billion, down 27% largely due to the calendar adjustments. More

“We think the market wobbles over November and December Fed rate cuts are overdone. November looks rock solid to us at present, and December looks strongly odds-on though necessarily not watertight with more time to accumulate data,” Evercore ISI analysts said in a Friday note.The Federal Reserve will likely cut rates in both November and December, analysts at Evercore ISI said in a Friday note, bringing the federal funds rate down to a range of 4.25% to 4.5%.The call for a November and December rate cut comes even as recent strong economic data, including retail sales and unemployment claims,  led some market participants to question whether the Fed is likely to pause at upcoming meetings.But Evercore ISI believes that the Fed is unlikely to swayed by the recent data as the central bank’s primary focus is on moving rates back to a “more neutral setting to maintain a robust labor market as inflation returns to target.”The current level of rates, meanwhile, remain at levels that continue to curb growth and inflation. Real rates remain significantly elevated compared with “mainstream views of what a neutral setting might look like even in the short run,” the analysts said.”So we think there is a strong bias to move steadily to cut twice more at successive meetings down to 4.25 to 4.5 per cent after December before considering slowing down,” they added.Looking ahead to 2025, Evercore ISI revised its growth forecast upward amid expectations for a boost from the carryover effect of increased fiscal resources and an expected rebound in credit growth.While the first leg of rate cuts this year is seemingly on a more certain footing, the second leg of rate cuts will be executed with more caution. “[T]he more nuanced judgments will come in the second leg from 4-4.5 per cent to 3-3.5 per cent, when the Fed will learn more about neutral and will have to factor in how to remain dynamically well positioned including with respect to Trump policy shocks if Trump wins,” the analysts said. More