There was some clear relief in consumer inflation in October, which is a welcome development for households and policymakers alike. The headline consumer price index rose "just" 0.4% during the month, which was below the Bloomberg consensus expectation for a 0.6% gain and caused the yearago pace to fall back to 7.7%, or the lowest annual rate of inflation in nine months (chart). Core prices also rose a more muted 0.3% during the month as core goods prices declined 0.4% amid an easing in supply chain constraints, which have boosted retail inventories. Core services prices rose 0.5% during the month, which is still quite fast compared to the pre-pandemic run rate but a bit softer than we anticipated.
Overall, October's moderation in inflation is welcome, but with the core CPI up at an annualized rate of 5.8% between July and October, there remains a long way to go before inflation returns to a rate the Fed will tolerate. The way back down to the Committee's 2% inflation goal will also likely be bumpy with services inflation particularly difficult to stomp out. The October CPI report reduced the likelihood of another 75 bps rate hike in December, but we expect policymakers to remain biased toward overtightening rather than under-tightening for the foreseeable future.
The FOMC noted for the first time it will consider the cumulative degree of tightening and the lags inherent in monetary policy when deciding on future rate moves at its November policy meeting. Chair Powell also emphasized the Committee is not done tightening yet. We take this communication and the lower-than-expected gain in inflation as evidence that the Fed will continue to hike rates, but at a slower pace, and we forecast the FOMC will hike the federal funds rate by 50 bps at its next monetary policy meeting.
This Week's State Of The Economy - What Is Ahead? - 21 February 2020
Wells Fargo Economics & Financial Report / Feb 22, 2020
Minutes from the January 28-29 FOMC meeting indicate the coronavirus will not push the Fed to cut interest rates, and for the most part housing and manufacturing survey data this week supported that view.
This Week's State Of The Economy - What Is Ahead? - 03 March 2023
Wells Fargo Economics & Financial Report / Mar 07, 2023
Looking at Q4 GDP, Australia\'s economy grew by less than expected, GDP was flat for the quarter in both Canada and Switzerland, and Sweden\'s economy contracted in the final quarter of last year.
This Week's State Of The Economy - What Is Ahead? - 28 October 2022
Wells Fargo Economics & Financial Report / Oct 31, 2022
Headline GDP continues to send mixed signals on the direction of the U.S. economy. During Q3, real GDP rose at a 2.6% annualized rate, ending the recent string of quarterly declines in growth registered in the first half of 2022.
This Week's State Of The Economy - What Is Ahead? - 03 June 2022
Wells Fargo Economics & Financial Report / Jun 08, 2022
While talk of recession has kicked up in recent weeks, the majority of economic data remain consistent with modest growth.
This Week's State Of The Economy - What Is Ahead? - 08 April 2022
Wells Fargo Economics & Financial Report / Apr 11, 2022
Wednesday\'s release of the FOMC minutes stirred things up as comments showed committee members agreeing that elevated inflation and the tight labor market at present warrant balance sheet reduction to begin soon.
This Week's State Of The Economy - What Is Ahead? - 16 April 2021
Wells Fargo Economics & Financial Report / Apr 17, 2021
Data released this week continue to show that the economic recovery has gained momentum in March. The much anticipated consumer boom has arrived.
This Week's State Of The Economy - What Is Ahead? - 16 August 2019
Wells Fargo Economics & Financial Report / Aug 17, 2019
Markets gyrated this week as the spread between the ten- and two-year Treasury\'s turned negative for the first time since 2007. Financial markets seem to expect that the sharp slowdown in growth overseas will soon spread to the United States.
This Week's State Of The Economy - What Is Ahead? - 04 November 2022
Wells Fargo Economics & Financial Report / Nov 07, 2022
Employers continued to add jobs at a steady clip in October, demonstrating the labor market remains tight and the FOMC will continue to tighten policy.
This Week's State Of The Economy - What Is Ahead? - 01 April 2022
Wells Fargo Economics & Financial Report / Apr 05, 2022
The key factor that will drive interest rates is the Fed’s belated effort to rein-in inflation.
This Week's State Of The Economy - What Is Ahead? - 16 October 2020
Wells Fargo Economics & Financial Report / Oct 20, 2020
Data continue to reflect an economy digging itself out of the lockdown-induced slump.
