This Week's State Of The Economy - What Is Ahead? - 04 November 2022

By: Taro Chellaram /Wells Fargo Economics & Financial Report/Nov 07, 2022

This Week's State Of The Economy - What Is Ahead? - 04 November 2022

In what was a widely anticipated decision, the FOMC elected to lift the target range for the federal funds rate 75 bps at the conclusion of its November policy meeting this week to a range of 3.75%-4.00%. We analyze the meeting in more detail in this week's Interest Rate Watch section. In short, we think the FOMC is prepared to slow the pace of tightening at future meetings, though it is not done tightening yet. The risk of not tightening enough and inflation becoming entrenched outweighs the risk of over-tightening. We still anticipate the FOMC will deliver a 50 bps rate hike in December, though the size of the hike depends largely on the incoming data. Specifically, the November employment report and two CPI reports released before the next policy meeting on December 14.

The October employment report closed out the week and showed employers continued to add workers at a rapid clip. Employers added 261K net new jobs in October, beating the consensus expectation for a 195K gain (chart). This also came on top of some upward revisions to past data, but the fever still looks to be breaking on hiring with the three-month average pace of hiring falling to the slowest pace since the start of 2021. Job gains were fairly broad-based across sectors, and the report is still consistent with a tight labor market, which we think reinforces the idea the FOMC will keep tightening policy.

We look for job growth to moderate further over the coming months. Job openings pressed higher in September, though month-to-month movements tend to be volatile. Most measures, including the job opening rate, hiring plans and the PMI employment sub-components, indicate demand for labor is topping out. But with hiring still solid to date, the FOMC continues to largely have cover to focus primarily on inflation. We'll get the consumer price data for October next Thursday and expect prices rose 0.6% over the month. Please see our Domestic Outlook section for more detail on our expectations for next week's release.

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