Economic Risks, Gas Prices, and Rising Interest Rates

Economic News/Policy: 

November 6: Economy Week Ahead: U.S. Inflation in Focus

Tuesday: China’s National Bureau of Statistics releases October figures on consumer inflation. Consumer prices in China rose 2.8% in September from a year earlier, at a quicker pace than the 2.5% annual pace the prior month.

Wednesday: The Commerce Department releases September figures on U.S. merchants’ wholesale inventories, which increased in August at a faster pace than in the previous month.

Thursday: The Labor Department releases its October consumer-price index, a reading of U.S. inflation that measures what consumers pay for goods and services. Consumer prices rose 8.2% in September from a year earlier, down slightly from 8.3% in August. The core consumer-price index—which excludes volatile energy and food prices—rose 6.6% in September from a year earlier, the biggest increase since August 1982.

The Labor Department reports the number of workers’ filings for unemployment benefits for the week ended Nov. 5. Initial jobless claims have hovered near the 2019 weekly average of around 218,000 in recent weeks, a sign of a persistently tight labor market.

Friday: The U.K.’s Office for National Statistics releases third-quarter gross domestic product and September figures on trade and industrial production. The British economy grew marginally in the second quarter but is expected to contract in future quarters because of the country’s cost-of-living crisis and higher interest rates.

The University of Michigan releases its preliminary reading of consumer sentiment for November. The final October reading showed that consumer sentiment improved slightly from September, but remained subdued as households worried about inflation.

November 4: Economy adds 261K jobs in October, unemployment ticks up

The U.S. added 261,000 jobs in October and the unemployment rate rose slightly to 3.7 percent, according to data released Friday by the Labor Department. Economists expected the U.S. to add roughly 190,000 jobs last month and keep the unemployment rate steady at 3.5 percent, according to consensus estimates.

While the overall jobs gain was better than anticipated, the labor market showed other signs of slowing under the weight of high prices, stubborn inflation, rising interest rates, and a weakening global economy.

“Over the last few months, the job market has consistently signaled that it is cooling,” Daniel Zhao, senior economist at Glassdoor, wrote in a Friday analysis. "There's still room for jobs growth to cool before red flags are raised about the health of the labor market."

The unemployment rate is still just 0.2 percentage points above its pre-pandemic level and the U.S. has continued to add jobs at a strong pace. The U.S. has added roughly 400,000 jobs each month since the start of the year, and there are still nearly two open jobs for each unemployed American. If the pattern of the October jobs report holds up - solid job gains, but less demand for workers - it may be possible for inflation to come down without the Fed raising rates high enough to cause a recession.

November 2: Fed Faces Tough Decisions as Inflation Lingers and Economic Risks Loom

The central bank is expected to raise rates by three-quarters of a point today, but what it says about its next steps will be even more important.

The Federal Reserve is expected to continue its fight against the fastest inflation in 40 years on Wednesday by raising rates three-quarters of a percentage point for the fourth time in a row. What officials signal about the central bank’s future plans is likely to be even more important.

Jerome H. Powell, the Fed chair, and his colleagues have been rapidly increasing interest rates this year to try to wrestle inflation lower. Rates, which were near zero as recently as March, are expected to stand around 3.9 percent after this meeting.

Wednesday’s move would be the sixth consecutive rate increase by the Fed. The last time it moved this quickly was during the 1980s, when inflation peaked at 14 percent and interest rates rose to nearly 20 percent. Fed officials have suggested that at some point it will be appropriate to dial back their increases to allow the full economic effect of these rapid moves to play out. The question now is when that slowdown might happen.

The Fed’s most recent economic projections, released in September, suggested that it could begin next month. But prices have remained uncomfortably high since those estimates were published. That could make it difficult for Mr. Powell and his colleagues to explain why backing down in December makes sense — even if they think it still does.

The Fed wants to slow its brisk rate increases at some point for a simple reason: It has already adjusted policy by a lot.

Before this year, central bankers had not raised interest rates by three-quarters of a point since 1994. The jumbo rate moves in 2022 have rapidly made it more expensive for consumers and businesses to borrow money.

“Inflation is likely to remain uncomfortably high for a while, and this could make continuing to hike in small increments for a bit longer the path of least resistance,” David Mericle at Goldman Sachs wrote in a recent research note. Plus, with wages picking up and consumers hanging in there, “more rate hikes might eventually be needed to keep the economy on a below-potential growth path.”

November 2: AFL-CIO bashes Federal Reserve over rate hike

AFL-CIO President Liz Shuler on Wednesday criticized the Federal Reserve for issuing another interest rate hike, warning that the move will have a "Direct and harmful impact" on working families. The labor leader's remarks come after Fed officials raised interest rates by three-quarters of a percentage point, the sixth rate hike since the Fed ramped up its efforts to slow the economy and tame inflation in March.

"The Fed seems determined to raise interest rates, though it openly admits those rates could ruin our current economy as unemployment remains low and people can find jobs," Shuler said in a statement. "The Fed's actions will not address the underlying causes of inflation - the war in Ukraine, climate change's effect on harvests and corporate profits, and an increase in the chances that the United States enters a recession."

Labor unions and progressive groups have condemned the Fed’s approach to taming inflation, which is focused on slowing wage growth to bring down demand, and thus prices. They argue that corporate greed is a primary driver behind persistent price hikes, pointing to data from the Bureau of Economic Analysis showing that U.S. corporate profits reached an all-time high in the second quarter of 2022.

"Working people should not be the target of lowering inflation - it should be corporations that are earning record profits," Shuler said.

Even as supply chain issues improved and demand for products dipped, inflation remains stubbornly high, with prices rising 8.2 percent over the last year ending in September, according to Labor Department data. The Federal Open Market Committee said in a statement Wednesday that "Ongoing increases" to interest rates may be needed to get annual inflation down to its 2 percent target.

Energy and Environmental Policy/News:

November 4: Biden says he will talk directly to oil companies soon about high gas prices

President Biden said Friday he will have direct conservation with oil companies soon, following his warning to oil giants earlier this week that they may face a "Higher tax" on excess profits. "I'm working like hell to deal with the energy prices," Biden said in San Diego, Calif. "I'm going to have a little - as they say - come to the lord talk with the oil companies pretty soon."

The president on Monday threatened to push Congress to impose a windfall tax on oil companies.

While analysts say the global oil market, not individual companies, set large portions of the price, Biden has ramped up his focus on record profits by oil companies ahead of Election Day, seeking to go on offense over an issue that polls have shown is a major topic for voters this fall.

Biden administration officials have met with oil executives amid their push to lower gas prices this year. When pressed on why Biden himself doesn't talk to companies directly, the White House has said he's made his point clear. Biden on Friday spoke in San Diego at Viasat, a communications company that focuses on hiring veterans as they transition to civilian life.

ICYMI: 

November 8: Chaos at Twitter brings up doubts about the path forward

Elon Musk's Twitter is engulfed in chaos amid widespread layoffs and an exodus of major advertisers. Experts say that Musk should focus on shoring up Twitter's relationship with advertisers, which make up around 90 percent of the platform's revenue but have pulled back their spending amid concern about Twitter's direction.

A coalition of dozens of advocacy groups last week urged advertisers to pause all ads on Twitter after mass layoffs at the company, a change the groups said meant Twitter could not moderate content at an acceptable rate.

Musk's other plans to generate revenue, including through building up Twitter's paid subscription feature, may not be a viable path forward either. Musk teased plans to start charging users $8 a month in order to receive a blue checkmark showing they are verified users, an option Twitter has historically offered for free for certain public figures.

A Harris Poll survey published last week found more than 60 percent of Twitter users surveyed said they would ditch Twitter if a monthly subscription were required.

"Twitter is a business that's been struggling for a long time. If they do nothing, then Twitter is almost certainly going to fail. At least doing crazy stuff increases some fraction probability that this will succeed," Harvard Business School professor Andy Wu said.