Finally, the Federal Open Market Committee (FOMC) of the Federal Reserve System decided to pause interest rate increases at its meeting last week. The FOMC had been raising its target range for the federal funds rate, the interbank lending rate, at previous recent meetings. Was the pause because inflation appears to be coming under control? Or, was it because at least some of the recent data show economic weakness? Or was it a combination of both? What are some experts saying?
David Rosenberg (@EconguyRosie) has pointed out in a May 16 tweet, among other things, that using his data (Rosenberg Research) and Haver Analytics, year-to-year US CPI inflation has fallen by an amount rarely seen within the last 70 years. But, in a slightly earlier tweet on May 15, using the same sources, he noted that the May New York Fed ISM (Institute for Supply Management) parts would probably be weak and consistent with recession. Again citing the same sources, he questioned in a June 12 tweet whether same store US retail sales, getting very close to no change (and perhaps a decrease), showed strength of consumers in the United States. On June 20, Rosenberg tweeted from the same sources that the Philadelphia Federal Reserve Bank services index now shows weakness.
Further, Jeff Gundlach (2023) said on CNBC that although employment is growing, average hours worked have fallen in the latest report. Gundlach also noted that (1) US leading economic indicators are falling, (2) the US M2 money supply is falling relatively rapidly, and (3) the yield curve has been inverted for a while. Given what he sees as economic weakness, Gundlach does not see another FOMC rate hike soon. Gundlach had been critical of the FOMC not raising rates fast enough. Now, he is concerned that higher interest rates may lead to an economic recession.
I thought that I heard Carl Quintanilla or someone else say last week on CNBC that US real retail sales (measured in US dollars with constant buying power) have been disappointing for a while. According to data on the ycharts website (https://ycharts.com/indicators/us_real_retail_sales) that I found on Sunday June 18, 2023, US real retail sales (measured in US dollars with constant buying power) have been below their level from April 2022 every month since then! Also, every month of real retail sales after May 2022 has been lower than its level from that month. Readers should note that this series is probably seasonally adjusted so that real retail sales for November 2022 and December 2022 may have been greater than their levels in April 2022 and May 2022, but less so than in a more ‘normal’ holiday shopping season. Further, readers should realize that the retail sales data may not include restaurants and the like.
Jeremy Siegel (2023) of Wisdom Tree and Professor Emeritus of the Wharton School at the University of Pennsylvania said on CNBC that the US inflation problem is in essence over and the Fed will shift emphasis to job and GDP growth soon. He is almost certainly not alone in his assessment.
Steve Weiss stated recently on CNBC (probably on Fast Money: Halftime Report with Scott ‘Judge’ Wapner (nickname probably inspired by ‘The People’s Court’)) that except for housing, most economic news has been disappointing lately (reminding me of the Stevie Wonder song on ‘Hotter Than July’). Perhaps the same day, another guest on CNBC but on Power Lunch with Kelly Evans noted weakness in aggregate hours of work in the U.S. She (the guest, not Evans) also pointed out that the US labor force participation rate has been stagnating. Both of these labor market statistics could be signs of the economy dramatically slowing down, if not heading into a recession.
Looking at some diagrams with data compiled by the U.S. Bureau of Labor Statistics (2023; A, B, and C) available at the St. Louis Fed FRED website, it seems that total private hours worked in the US is leveling off. Clearly, that could indicate a recession coming soon.
With US inflation perhaps coming under control very soon if it is not already, the FOMC may have decided that a pause in its interest rate hikes was the most appropriate course of action given possible macroeconomic softness. We will soon see if the pause was very short term. It may take longer to determine whether the FOMC has already raised interest rates too much.
Please accept my apologies for any misstatements, misunderstandings, inconvenience, or confusion. Also, readers should realize that subsequent data revisions may alter the above analysis. Thanks in advance for your understanding.
REFERENCES
Gundlach, J. (2023) on CNBC June 14 2023, available online at the website below https://www.youtube.com/watch?v=tO2xzYSGmII
Siegel, J. (2023) on CNBC, available online at https://www.cnbc.com/video/2023/06/14/fed-will-shift-focus-from-inflation-to-labor-market-says-whartons-jeremy-siegel.html
U.S. Bureau of Labor Statistics. (2023, A) Nonfarm Business Sector: Hours Worked for All Workers [HOANBS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HOANBS, June 21, 2023.
U.S. Bureau of Labor Statistics. (2023, B) Indexes of Aggregate Weekly Hours of All Employees, Total Private [AWHAE], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/AWHAE, June 21, 2023.
U.S. Bureau of Labor Statistics. (2023, C) Indexes of Aggregate Weekly Hours of Production and Nonsupervisory Employees, Total Private [AWHI], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/AWHI, June 21, 2023.
