Kenny Polcari, Slatestone Wealth’s chief market strategist, discusses the release of the October jobs report and how it endorses the Federal Reserve’s plan to address inflation at Varney & Co.
An often-overlooked economic indicator on Friday suggested the US economy is headed for — or already in — a recession as the Federal Reserve seeks to curb inflation with a series of rapid rate hikes.
The Conference Board’s Leading Economic Indicators Index showed conditions continued to deteriorate in October, with the index falling 0.8% from the previous month. This follows a 0.5% decline in September.
“The US LEI fell for the eighth straight month, suggesting the economy may be in recession,” said Ataman Ozyildirim, senior director of economic research at The Conference Board.
The slump reflects the deteriorating outlook for consumers, who are increasingly concerned about steeper interest rates and stubbornly high inflation, as well as a prolonged housing market slump.
DEMOCRATS PROPOSE ‘DANGEROUS’ FED RATE HREAKS AND WARN OF WIDE LOT LOSS OF JOBS
Shoppers are seen at a Kroger supermarket in Atlanta, Georgia on October 14, 2022. (Elijah Nouvelage/AFP/Getty Images)
Expectations are growing on Wall Street that the Fed will trigger an economic downturn as it hikes interest rates at its fastest pace in three decades to catch runaway inflation.
Officials this month approved a fourth straight 75 basis point rate hike, raising the benchmark interest rate to a range of 3.75% to 4% – close to hawkish – and showing no signs of halting hikes.
In a worrying development, the Fed’s rate hikes have so far failed to curb inflation: the government reported this month that the consumer price index rose 7.7% year-on-year in October and is hovering near a 40-year high.
FED RAISES RATES BY 75 BAPS FOR FOURTH CONSECUTIVE MONTH
This suggests that the Fed must continue its aggressive stance, increasing the likelihood that it will rein in consumer demand and increase unemployment.
“Let me say that,” Fed Chair Jerome Powell told reporters earlier this month. “It is very premature to think of a break. When people hear delays, they think of pauses. In my view, it is very premature to talk about pausing our rate hikes. We still have a long way to go.”
Job seekers visit booths during the Spring Job Fair at the Las Vegas Convention Center in Las Vegas, Nevada on April 15, 2022. (KM Cannon/Las Vegas Review-Journal/Getty Images)
Rising interest rates tend to result in higher interest rates on consumer and business loans, which slows the economy by forcing employers to cut spending.
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Economic growth was already contracting in the first two quarters of the year, with gross domestic product – the broadest measure of goods and services produced in a country – contracting 1.6% in the winter and 0.6% in the spring.
However, it rebounded in the summer, with GDP growing at an annualized 2.6% for the three-month period from July to September.