Summary
United States: Going to Take More to Break This Consumer
- Incoming data indicate a slowing yet resilient economy. Recent strength makes it less likely in our view that a recession will start by the beginning of next year and also means more monetary tightening will be necessary to slow growth sufficiently to quell elevated inflation. We still forecast a modest recession next year, but now are expecting it to begin a bit later.
- Next week: ISM Manufacturing Index (Mon), ISM Services Index (Wed), Employment (Fri)
International: Bank of England Intervenes to Calm Markets; Eurozone Inflation Hits Double Digits
- After the U.K.’s mini budget fueled concerns about inflation, the BoE committed to temporarily buying unlimited long-dated gilts to soothe markets, and will make a full assessment at its next policy meeting on November 3, where we expect a 100 bps rate hike. In other news, Eurozone September CPI reached 10% year-over-year. With the natural gas supply relationship between Russia and Europe deteriorating, there are concerns that energy prices will climb even higher.
- Next week: Japan Tankan Survey (Mon), RBA Decision (Tue), RBNZ Decision (Wed)
Interest Rate Watch: Update to Our Fed Funds Forecast
- The continued resiliency of the U.S. economy and the FOMC’s apparent willingness to do “whatever it takes” to rein in inflation has led us to upwardly revise our forecast. We now see the Committee taking its target range for the fed funds rate to 4.75%-5.00% by Q1-2023.
Credit Market Insights: Five Trillion Down, Still 26 Trillion Up
- The Fed’s updated Distributional Financial Accounts indicated declining household wealth over Q2 of this year. Since its peak in the Q4-2021, household wealth is down over $5 trillion, from $141.9T to $135.8T, and all but a quarter trillion of this decline occurred in Q2. Even with the recent hit to wealth, household wealth is still almost 24% above pre-pandemic levels.
Topic of the Week: Easy on the Gas: Germany Institutes Energy Price Cap
- On Thursday, the German government announced plans to institute a $194B package aimed at curtailing crippling energy costs. This announcement came on the same day that Germany’s September CPI report revealed inflation surging to a scorching hot 10.9% year-over-year.
