In March, US inflation fell to its lowest level in nearly two years as prices rose 5% year-on-year. In April, inflation remained largely stable at 4.9%. Compared to the previous month, prices were up 0.4 percent seasonally adjusted. Food prices were generally stable over the two months, with household food falling 0.3% and 0.2% over the period. Energy prices fluctuated but fell 5.1% year-on-year. Some of this decline, however, has been offset by rising home prices, which have risen 0.4% and more than 8% year-on-year since March.
Partly due to rising housing costs, core CPI (excluding food and energy) is now higher than for all goods. Food and energy are considered the most volatile items in the CPI – they rose fastest when inflation started in late 2021, but are also cooling faster now, especially in energy. Given these developments, the Fed's cycle of tightening monetary policy to curb inflation may soon end. At the beginning of May, the central bank announced a further 0.25% increase in the target federal funds rate, which most members of the Federal Open Market Committee believe will be the first rate hike. last rate for this year.
When inflation starts to pick up in the spring/early summer of 2021, it is largely due to the so-called base effect, which reverses the cooling effect of consumer prices caused by the pandemic a year earlier. Prices plummeted at the start of the pandemic due to a sudden drop in consumer spending and fuel demand, then gradually returned to their pre-pandemic trajectory in the summer and fall. Because of this initial drop in consumer prices, year-to-year comparisons have been exaggerated for a while, but as of late 2021 this is no longer true. In March, the annual rate was compared with post-invasion inflation for the first time, meaning that the rate of inflation from then on would be lower than prices that have skyrocketed since the start of the war in Ukraine.
America's Debt is growing no matter who's in the White House
According to the Treasury Department, the US public debt exceeded $31 trillion for the first time in October 2022. Since the start of the coronavirus pandemic in early 2020, as much as $8 trillion has been added.
The US has gone through three Republican and three Democratic administrations since the 1980s, but whoever is in the White House, America's debt has steadily increased over the years, while raising the debt ceiling. While both Democrats and Republicans have raised debt while in office, raising the debt ceiling needed is often quite controversial, often lasting to the last minute, about a country's ability to repay its debt.
On December 16, 2021, Congress raised the debt ceiling for the last time to $31.38 trillion. The debt ceiling stipulates that the Treasury cannot incur debt above a certain limit, unless authorized by the legislature. However, as of January 19, the amount expected until the end of 2021 has been exceeded. Although the debt ceiling has not been lifted this year, financial maneuvering measures, also known as emergency measures, are keeping the US from defaulting. Finance Secretary Janet Yellen recently said they could keep the country open until around June 1.
If there's one regular theme in Jerome Powell's statements during the inflation crisis, it's that we're not done yet. Whenever asked about future rate hikes, he repeats the mantra: do whatever it takes to curb inflation, but you still don't know where the ceiling is. Now that the year of the most intense monetary tightening cycle since the early 1980s has passed, it seems that the ceiling is not far away.
According to projections released on Wednesday after the end of the last FOMC meeting, 10 out of 18 meeting participants expect another 25bp rally this year, and one FOMC member even considers the rate to be high. The current price is the end of the tightening cycle. While seven meeting participants expect the federal funds rate to rise by 50-100 basis points by the end of the year, no one believes it will exceed 6.00%.
U.S. Economy: Cloudy With a Chance of Stagflation
After appearing surprisingly resilient to the Fed's aggressive tightening last year, the US economy began to show signs of weakness in the first three months of 2023. Annual real GDP growth was slow. back at 1.1%. for the first quarter of 2023, the Bureau of Economic Analysis reported on Thursday, with 2.6%. in the fourth quarter of 2022, much lower than analysts' expectations.
While this could be good news for those hoping the Fed will stop raising rates at the upcoming FOMC meeting next week, the disappointing growth results were accompanied by a rise in the Consumer Spending Price Index. personal use (PCE). to the inflation sensor. The PCE Price Index increased at an annualized rate of 4.2 percent in the first quarter of 2023, compared with 3.7 percent in the previous quarter. The core PCE index, which excludes food and energy, rose 4.9% from 4.4% in the fourth quarter of 2022.
Slower growth is often seen as a necessary evil to reduce inflation. However, slow growth coupled with persistent or even rising inflation is a different story as it raises fears of stagnant inflation, the worst of both worlds. Sluggish inflation, a period of slow growth, high unemployment and high inflation, is considered by many to be among the worst conditions for the economy because it limits the tools available to politicians. ruler. Measures to combat sluggish growth and unemployment tend to boost inflation, while measures to curb it weaken economic activity and ultimately lead to unemployment.
While this scenario is still far off, after all, with the economy continuing to grow in the first quarter of 2023 and unemployment remaining at historic lows, the latest data could bolster confidence. Fed's news about reducing inflation (almost) at all costs. As the turmoil in the banking system seems to have subsided for now, many are expecting another small 25 basis point increase from the FOMC next week.
US job growth continues to exceed pre-pandemic levels
Despite the Fed's aggressive efforts to cool the US labor market and curb inflation, last month's job growth was again stronger than expected. Employers added 263,000 non-farm jobs in November, compared with economists' expectations of 200,000 new jobs, according to the latest jobs report released Friday by the Bureau of Labor Statistics. . Total U.S. nonfarm payrolls rose to 153.5 million in November, surpassing the pre-pandemic high of 152.5 million per million jobs. Wages also rose faster than expected last month, further weakening hopes that the Fed will adopt a less hawkish stance soon.
Markets initially crashed on the hotter-than-expected jobs report before recovering most of their losses during Friday's rollercoaster session. The S&P 500 ended the day down just 0.1%, a relatively weak response to previous strong jobs reports.
It's a strange situation created by the inflation crisis: usually Wall Street, when it's good news, now desperately hopes for signs of a slowing economy/labor market, because anything signaling a recession increases the likelihood that the Fed will move to a less aggressive rate trips ahead.
Ahead of next week's FOMC meeting, markets are expecting another 50-point gain, bringing the total gain for the year to 450 basis points. The FedWatch CME tool estimates the probability of such an increase at 79.4% and the probability of another 75 point increase at 20.6% since December 5.
The Largest Risks Faced by the World
In the next ten years, climate change and its impacts will be the biggest threat facing the entire world. That is the view of more than 1,000 academic, business and political leaders, who were asked to rank 32 global risks over a two- and ten-year period as part of the Global Risk Perception Survey. annual requirements of the World Economic Forum.
Although experts are looking at a crisis related to the cost of living (i.e. all indications that the world will be linked to climate change). The chart below perfectly illustrates the difference between what experts see as short-term risks and the challenges that will define the world for years or even decades to come.
The 18th edition of the WEF Global Risks Report focuses on the risk of a potential "diversity crisis", a cluster of interdependent global risks with escalating consequences. For example, extreme climate events or geopolitical crises such as the war in Ukraine can lead to food, water or energy crises, which in turn can have enormous impacts and ultimately lead to to political upheaval, civil unrest and even mass migration.
"The world's collective focus is being channeled into the “survival” of today’s crises: cost of living, social and political polarization, food and energy supplies, tepid growth, and geopolitical confrontation, among others," Saadia Zahidi, managing director at the World Economic Forum finds, warning that “much-needed attention and resources are being diverted from newly emerging or rapidly accelerating risks to natural ecosystems, human health, security, digital rights and economic stability that could become crises and catastrophes in the next decade.”
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