December 5, 2022 — Strong Data Stalls Fed’s Hopes for Slowing Inflation


 In a big data release week, it was reported the US economy grew faster in the third quarter than expected at a 2.9 percent annualized rate.  This marks a rebound from the 0.6 percent and 1.6 percent decreases in Q1 and Q2. As the report shows a strengthening economy, inflation will remain high and will lead to rates still moving up, growth in Q4 is expected to slow.

Inflation in October rose in line with estimates, with the core personal expenditures index up 5 percent from a year ago. This is down from 5.2 percent in September. Personal income was up 0.7 percent for the month, ahead of the 0.4 percent estimate, and spending rose 0.8 percent as anticipated.

In a speech Wednesday, Fed Chair Powell said he sees signs price increases are abating but he needs to see more consistent evidence before the central bank can alter policy. He did indicate the hikes can start getting smaller, maybe as soon as this month.

The Fed is closely watching the jobs market for signs of cooling, but the release of November data on Friday disproved that. The economy added 263,000 jobs, showing continued strength with the unemployment rate holding at 3.7 percent.  This labor market is not showing signs of a recession with wage gains up 0.6 percent in November and 5.1 percent for the year. Rising wages are often passed through to consumers as higher prices, driving inflation.

The Fed will meet December 13-14 and is certain to raise rates again.  The unknown is by how much, but a 0.5 percent rise is expected.