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? - 05 June 2020
Wells Fargo Economics & Financial Report / Jun 09, 2020
Data this week continued to suggest the U.S. economy hit rock bottom in April. Still, it is a long road to recovery and the pickup in economic activity will be gradual.
This Week's State Of The Economy - What Is Ahead? - 01 May 2020
Wells Fargo Economics & Financial Report / May 04, 2020
U.S. GDP declined at an annualized rate of 4.8% in the first quarter, only a hint of what is to come in the second quarter.
This Week's State Of The Economy - What Is Ahead? - 10 April 2020
Wells Fargo Economics & Financial Report / Apr 11, 2020
The Federal Reserve greatly expanded the collateral that it is willing to buy, further easing pressures in financial markets.
This Week's State Of The Economy - What Is Ahead? - 13 August 2021
Wells Fargo Economics & Financial Report / Aug 19, 2021
The general outlook remains positive as households have accumulated over $2T in excess savings on their balance sheets and net worth has risen across all income groups.
This Week's State Of The Economy - What Is Ahead? - 23 August 2024
Wells Fargo Economics & Financial Report / Aug 29, 2024
Home sales also have been slow to respond. Existing home sales inched up during July alongside a modest dip in mortgage rates.
This Week's State Of The Economy - What Is Ahead? - 06 December 2019
Wells Fargo Economics & Financial Report / Dec 07, 2019
The latest hiring data are an encouraging sign that the U.S. economy is withstanding the global slowdown and continued trade-related uncertainty.
This Week's State Of The Economy - What Is Ahead? - 08 November 2019
Wells Fargo Economics & Financial Report / Nov 09, 2019
Optimism soared this week on hopes of a forthcoming trade deal, as equity markets hit all-time highs and the yield curve steepened.
This Week's State Of The Economy - What Is Ahead? - 02 October 2020
Wells Fargo Economics & Financial Report / Sep 29, 2020
In what was a jam-packed week of economic data, the jobs report, prospects of additional fiscal stimulus and the president’s positive COVID-19 test result commanded markets’ attention.
This Week's State Of The Economy - What Is Ahead? - 16 September 2022
Wells Fargo Economics & Financial Report / Sep 20, 2022
Financial markets reacted in a zig-zag pattern to this week\'s economic data ahead of the next FOMC meeting. Price pressure is still not showing the sustained slowdown the Fed needs before it takes its foot off the throttle of tighter policy.
This Week's State Of The Economy - What Is Ahead? - 09 September 2022
Wells Fargo Economics & Financial Report / Sep 10, 2022
The ISM services index came in stronger than expected, and the underlying details pointed to service sector resilience with business activity and new orders notching their highest reading this year.
