Inflation Measures Don't Count a Huge Cost That's Driving Economic Unhappiness
Read more about how interest rates are killing the economic vibes here.
Financial Markets Are Especially Sensitive to Inflation Signals, Economists Say
Economists expect one inflation measure to tick higher tomorrow, and the stock markets may fall in response.
Officials at the Federal Reserve have repeatedly said their next moves will be guided by incoming economic data—and that’s made markets especially twitchy at the slightest information on the trajectory of inflation and the economy. "Markets are very sensitive to it because that's going to factor into their expectations of when the Fed is going to start easing their foot off the brake,” Ryan Sweet, chief economist at Oxford Economics, said in an interview. “There could be a tendency for markets to overreact in one direction or the other just based on the incoming inflation data.”Read more about how economic data releases are making investors skittish here.
Fed Officials Optimistic (But Still Not Confident) Inflation Is on Path to 2%
While Boston Federal Reserve Bank President Susan Collins echoed her colleagues in remarks at New Hampshire’s Dartmouth College, she struck a hopeful tone.
"As a Federal Reserve policymaker, I am resolutely committed to bringing inflation sustainably back to our 2% target in a reasonable amount of time," Collins said. "And I remain optimistic—realistically optimistic, I like to say—that this can be accomplished amid a healthy labor market."Pointing to work by Boston Fed economists, Collins said she wanted to see continued evidence that higher wages weren’t adding to inflationary pressure. Consumer expectations for inflation, like the results in the recent Consumer Confidence Index, are another key indicator that Collins said she was closely following.
Meanwhile, New York Fed President John C. Williams also urged patience from Federal Reserve officials in his remarks to the Long Island Association, saying there was time to evaluate more data on inflation before moving to lower rates without giving details on timing. His remarks come ahead of tomorrow’s release of the Personal Consumption Expenditures (PCE) inflation index.
However, Williams did say he expects inflation to continue on the path toward 2% this year, with economic growth slowing. Williams projected the U.S. gross domestic product would slow this year to around 1.5%, with unemployment peaking at around 4%. He forecast the PCE index would likely fall to between 2% and 2.25% in 2024, eventually settling at the 2% inflation target next year. “The risks to this forecast are two-sided. Inflation may surprise on the upside, or consumer strength—a major driver of the robust growth we saw in 2023—may fade more quickly than I anticipate,” Williams said.-Terry Lane
Mortgage Activity Falls Again as Rates Stay Around 7%
This is the third consecutive week that the Mortgage Bankers Association’s Market Composite Index fell lower. The report showed applications for home purchases and mortgage refinancing were below both last week’s and last year’s levels.
Mortgage rates hovered near 7% last week, about a quarter of a percentage point higher than at the start of the year, which helped discourage potential homebuyers, the MBA said.
“Higher rates in recent weeks have stalled activity, and last week it dropped more for those seeking FHA and VA refinances,” Mike Fratantoni, MBA chief economist. However, it hasn't stalled in all arenas. Overall purchase activity is running 12% behind last year’s pace, while the MBA’s January Builder Application Survey showed that applications to buy new homes were up 19% over last year. “This disparity continues to highlight how the lack of existing inventory is the primary constraint to increases in purchase volume. However, mortgage rates above 7% sure don’t help,” Fratantoni said.-Terry Lane
Inventories Moved Little In January
Wholesale inventories were down 0.1% from December and 2.3% from January 2023, according to Wednesday's report from the U.S. Census Bureau. Nondurable goods were partly responsible for the dip, 0.9% on the month.
Retail inventories were up 0.5% from December and 5.1% from January 2023. Motor vehicles led the charge with a 0.8% increase.U.S. Economic Grew A Little Slower In Q4 Than First Thought
The U.S. economy grew at a slightly slower rate in the fourth quarter than an initial estimate indicated last month.
The Gross Domestic Product grew at an annual rate of 3.2% in the fourth quarter, the Bureau of Economic Analysis said Wednesday in a revised estimate, a downtick from the 3.3% annual rate shown in the advance estimate published in January.
Even at the downwardly revised rate, economic growth still beat the expectations of forecasters, who had expected the Federal Reserve’s campaign of anti-inflation interest rate hikes to drag down the economy far more than it has.
The bureau revises each of its quarterly growth estimates three times as more economic data comes in. In the latest revision, the bureau cut its estimate for business investment, while increasing it for consumer and government spending. The third and final estimate is due out March 28.
Correction: This post has been updated to reflect the data was released Wednesday.
Trade Deficit Grows $2.3 Billion in December