What more does Chairman Powell and the Federal Reserve Governors need to know to announce the inflation battle has been won? Its preferred inflation indicator has shown zero monthly increases for two months.
The rate of U.S. inflation based on the Federal Reserve’s preferred PCE index actually fell in November for the first time since 2020 and indicated that price pressures continue to subside. The PCE index dipped - 0.1 percent last month, the government said Friday. Inflation was unchanged in October.
This is what is called a ‘soft landing’, I said last week when the unemployment rate dropped back to 3.7 percent. More jobs are being created in November’s unemployment report, though some 50,000 of the 199,000 new nonfarm payroll jobs are strikers returning to work in Hollywood productions and auto factories.
So the Fed’s actions in raising interest rates to multi-decade highs wasn’t the proximate cause of declining inflation, in what looks like an overaction to the effects of the COVID pandemic.
High inflation wasn’t the fault of rising wages, either, when job openings are still at record highs so that everyone who wants a job can find one.
Workers are getting terrific raises now that the strikes have been settled, yet inflation keeps declining. No, broken supply chains were the major culprit. It’s taken almost three years to ramp up enough production to bring down prices.
We are now seeing the results as shoppers have shown in the latest retail sales figures that they are finding more bargains during this record holiday shopping season.
Even industrial production is ramping up; so much so that Q4 projections of growth are rising again.
Orders for durable goods for products that last more than three years (cars, appliances, etc.) rose 5.4 percent in November, the U.S. government said Friday. This is the largest gain since July 2020. It is the second gain in the past three months. Transportation orders had the largest increase, rising 15.3 percent in November. This was in part because orders for motor vehicles and parts jumped 2.8 percent after the end of the UAW strike. Orders for commercial aircraft also soared but tend to fluctuate wildly month-to-month.
The Atlanta Fed raised its estimate of fourth quarter GDP growth as high as 3.0 percent and it could go higher with today’s robust durable orders release by the Commerce Department.
The U.S. Federal Reserve Board suggested that interest rates would be cut by 75 basis points in 2024 after it last FOMC meeting of 2023 in December. Can we now be in what is called a Goldilocks economy?
That is when the Fed’s interest rate isn’t so low that it ushers in inflation, yet not so high that it tips the economy into a recession. Maybe we’ve reached that point.
Once again, consumers will decide on the direction of economic growth. And holiday travel shows they haven’t slowed down much.
Auto club AAA forecasts that 115 million people in the U.S. will go 50 miles or more from home between Saturday and New Year’s Day. That’s up 2% over last year. The busiest days on the road will be Saturday and next Thursday, Dec. 28, according to transportation data provider INRIX.
And MarketWatch reports the Transportation Security Administration screened more than 2.6 million passengers on Thursday, which had been projected to be one of the busiest travel days, along with Friday and New Year’s Day. That’s short of the record 2.9 million that agents screened on the Sunday after Thanksgiving, since travel tends to be more spread over Christmas and New Year’s.
The chorus is growing on the need to begin dropping interest rates. That’s all we need to sustain this recovery.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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