not giving anything
Fed officials have been very clear: Outlook for interest rate cuts The pace of economic growth will accelerate significantly. It is very likely that this week's economic data will further delay the rate cut.
it's very obvious the economy slowed down This is a significant increase from the impressive pace of 4.9% real growth and 8.3% nominal growth experienced in the third quarter of last year. No one expected the economy to grow so quickly. In fact, many analysts began 2023 predicting a recession in the second half of the year – and no one expected the economy to continue growing so quickly.
However, the economy does not appear to be cooling as much as expected.
Waller dressed up as a pigeon for Halloween
Early on, some of the unusually high activity in the third quarter Progressed from the 4th quarterThis indicates that growth in the last three months of the year will be below trend. christopher wallerThe last Fed director appointed by Donald Trump, he raised this possibility in his “Something's Gotta Give” speech last October.
After noting how strong growth was in the third quarter and hinting that initial forecasts were likely to be revised downwards (which they were not), Waller said the fourth quarter would be a strong one for the economy. He explained that it may be weak enough to warrant rebalancing.
The question is whether the actual acceleration in activity will be sustained. In some cases, an increase in activity may be followed by some kind of rebound or deceleration. For example, if a company brings forward construction because of good weather, the investment in the current structure will be higher now but lower in the next period. Therefore, to get a clearer picture of the underlying strength of the economy, we want to focus less on activity in a particular month and more on the average growth rate over several quarters. .
Waller went on to stress that he would be. monitor consumer spending Collect data very thoroughly and patiently.
There were signs in October that an economic slowdown could occur.The economic indicators are as follows Waller's “revenge” script.
retail sales Nominal spending in stores was reported to have decreased for the month, with nominal spending at stores decreasing for the first time in seven months. Retail sales, excluding automobiles and gas stations, rose only 0.1%. The consumer price index remained unchanged for the month, with the core price index increasing by only 0.2%. According to employment statistics, the number of employees increased by only 150,000 (later revised downward to just 105,000).Both University of Michigan and Conference Board index It showed a slowdown in consumer attitudes.
This raised expectations Early and frequent interest rate cuts By the Federal Reserve System. For some, the prospect of a recession in the first half of 2024 has grown, with prospects for the recession widening in the fourth quarter of 2023 and becoming deeper in the first and second quarters of this year. . Even more popular was the prediction that the economy was headed for a soft landing in which growth would slow but a deep recession would be avoided, but inflation would stay on track toward the Fed's goals. .
Federal Reserve Chairman Christopher Waller speaks at a Fed Listens event in Washington, DC, on September 23, 2022. (Al Drago/Bloomberg via Getty Images)
In a follow-up speech in December, Waller pointed out that: Signs of sluggish personal consumption As evidence that (as he titled his speech) “something seems to be given”:
Data on economic activity for October showed consumer spending slowing from the pace of the third quarter. Retail sales fell 0.1%, the first decline since March. Spending on autos, an interest rate-sensitive sector, has fallen, which may be evidence that the FOMC's monetary tightening is having some effect. Spending at gas stations also fell, largely due to a significant drop in gas prices, which is often a bigger factor for this retail sector than changes in demand. However, retail sales rose little in October despite the absence of car and gas station sales, which may reflect broader demand subduedness.
I got run over by a reindeer because of the interest rate cut.
However, more recent data paints a very different picture. Employment increased in November and in earnest in December, with employment numbers increasing by 173,000 and 216,000, respectively.of consumer price index It rose 0.1% in November and rose to 0.3% in December. The core inflation index increased by 0.3% in November, rising from the previous month, and further increased by 0.3% in December, confirming another acceleration.
Retail sales rose 0.3% in NovemberThis was much higher than expected and showed shoppers picking up their pace from the previous month. There were hints that this was just the beginning. Gallup reported that Americans have revised their holiday spending forecasts upward, making it unusual for spending plans to increase in the middle of the season. December statistics were finally released this month and showed sales rose 0.6% for the month, exceeding the hopes and dreams of even the most bullish retail analysts.
On Friday, the University of Michigan released a new paper that states: consumer confidence. Confidence not only rose for the second consecutive month, but also recorded the largest monthly increase since 2005. Combining the gains in November and December, he Second consecutive month of increase since 1991. Sentiment is now nearly 60 percent higher than the all-time low set in June 2022 and very close to its historical average since 1978.
In other words, the consumer side of the economy is showing signs of heating up, rather than cooling down as expected.of Atlanta Fed GDPNow The economy is expected to grow 2.4 percent in the fourth quarter, much higher than the 1.5 percent expected by most economists.
When the Fed met in December, Economic forecast overview gave a median growth forecast of 2.6% in 2023 (up from just 2.1% at the September meeting, but given the 4.9% growth in the third quarter, that seems almost numerically impossible). Ta). The growth rate he should slow down to below 1.5%, since the first quarter was 2.1% and the third quarter was 4.9%. If the growth rate in the fourth quarter was 2.4%, the economic growth rate for the year would probably be around 2.9%.
This pace of growth is very likely sufficient. force the Fed to postpone interest rate cutsThis makes the preliminary forecast of fourth-quarter and full-year growth rates to be released next week a very important report.
