Taper to begin in November

Fed officials gave a heavy hint today that the QE taper will be formally announced in November and, presumably in response to concerns that the surge in inflation won't be as transitory as they originally hoped, there were notable increases in the median interest rate projections.
Paul Ashworth Chief North America Economist
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US Data Response

Industrial Production (Sep.)

The 1.3% fall in industrial production in September partly reflects a temporary hit to mining and chemicals output from Hurricane Ida and a drop in cooling demand, as the weather returned to seasonal norms. That said, most of the 0.7% drop in manufacturing output is due to worsening shortages, particularly of semiconductors, which will hold back production for some considerable time.

18 October 2021

US Economic Outlook

Whiff of stagflation gets stronger

The whiff of stagflation is getting stronger as shortages worsen, leading to surging prices and weaker real GDP growth. Shortages of goods and intermediate inputs will eventually ease, although not for at least six to 12 months. But the drop in the labour force appears to be more permanent, which suggests the pandemic could have a long-term scarring effect on potential GDP after all. We now expect GDP growth to be 2.7% in 2022 and 2.0% in 2023 and we expect CPI inflation to be around 3.0% in both years. We assume the Fed will focus on the weakness in the real economy rather than the sustained overshoot in inflation, however, and are forecasting only two interest rate hikes in 2023.

18 October 2021

US Economics Weekly

Labour force exodus shows no sign of reversing

This week brought more news that acute labour shortages and the resulting surge in wages are rapidly feeding through into the most cyclically sensitive components of the consumer price index.

15 October 2021

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US Chart Book

Data provide mixed signals on Delta impact

The latest data provide mixed signals on the impact that the Delta variant is having on the economy. The high frequency indicators for high contact services suggest that activity levelled out in August and weakened a little in early September. Last month’s retail sales report also revealed that spending on food services was broadly flat, but control group sales nevertheless rebounded strongly, as households refocused their spending online and in favour of goods consumption. Elsewhere, leisure and hospitality employment was unchanged in August which, because that sector had been such an important contributor to the strength of the gains in earlier months, helps to explain why payroll employment increased by little more than 200,000 last month. Finally, even though activity only stagnated, the prices for some high contact service activity like hotels and air fares fell quite sharply. The good news is that, with Delta variant infections having now peaked, we should see some rebound in affected activity and employment soon, although the downside is that could contribute to a renewed pick-up in inflation linked to reopening.

21 September 2021

US Data Response

Consumer Prices (Aug.)

The more modest 0.1% m/m increase in core consumer prices in August will be heralded as a sign that the recent surge in inflation was transitory after all but, although the spread of the Delta variant has put the burst of reopening inflation into reverse, there are still plenty of signs of a building cyclical inflationary pressure.

14 September 2021

US Economics Weekly

Labour market shortages getting worse

Tapering is off the table this month and whether the Fed will make an announcement before year-end depends on the strength of employment, which is being held back by increasingly acute labour shortages and the spread of the Delta variant.

CE Spotlight 2021: The Rebirth Of Inflation? We’re holding a week of online events from 27th September to accompany our special research series. Event details and registration here.

10 September 2021
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