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Add one more voice to the Great Recession Debate of 2022 – Fed Chairman Jay Powell said on Wednesday that he does not think the US is in one. Still.
“There are many areas of the economy that are performing very well,” he said at his post-meeting news conference, citing historically low unemployment, strong monthly job growth and continued wage growth.
But what did Powell NOT say?
it not say the US won’t be in a recession anytime soon. Economic activity in the second quarter has slowed down considerably.
it He did say the Fed isn’t trying to cause a recession and doesn’t think officials should do anything to lower inflation.
But he not say the Fed would retreat or reverse course if the economy begins to weaken significantly – something markets increasingly seem to expect. He reiterated that growth would have to slow and unemployment would have to rise to bring inflation back to the Fed’s 2 percent target.
Here’s more from our Victoria Guide on the Fed’s decision to raise rates by three-quarters of a percentage point.
Why power forward? — Powell took some heat earlier this week from Sen. Elizabeth Warren (D-Mass). supply issues.
Powell addressed this indirectly, admitting that yes, Fed officials would typically overlook (ie ignore) volatile changes in commodity prices — as we’ve seen since Russia invaded Ukraine — that have added to price pressures.
The problem now: A sustained period of supply shocks could begin to damage or anchor inflation expectations, Powell said. This is a major concern for the Fed.
“The public doesn’t differentiate between core or headline inflation in their thinking,” he said. “So it’s something that we have to take into account in our policymaking, even though our tools don’t really work on some aspects of this, which are the supply-side issues.”
The GDP miracle — Powell also teased all the morons in the room (OK, maybe just your host MM) with a reminder that first-quarter gross domestic product data releases have tended to come in weaker than other quarters, a phenomenon of known as residual seasonality. This can make the numbers look worse than they are.
Why does this matter? The reason we’re having a recession debate in the first place is because GDP shrank in the first three months of the year, raising expectations that a second straight quarterly decline would signal a recession.
Leaving aside whether this is the right way to define a downturn (you can read more about our thoughts here), as well as the factors behind the first-quarter contraction (more here), Powell is pointing out that the data from the first quarter may not be more reliable.
Additionally, the first estimate of quarterly GDP — due this morning for the second quarter — is often revised, Powell said.
IT’S THURSDAY — Congratulations to those who closed their mortgage rate in 2021. Send your questions, plus any tips or story ideas, to [email protected], [email protected] or [email protected].
Census Bureau releases initial estimate of second-quarter GDP at 8:30 a.m. … Senate banking hearing on crypto fraud with witnesses from NASAA and FINRA at 10 a.m. … Senate Finance Committee to review Treasury and Trade nominations at 10 a.m.… Financial Stability Oversight Council meeting to discuss climate-related financial risks at 11:20 a.m.… Treasury Secretary Janet Yellen is holding a press conference at 1:30 p.m.
Tweet of the day – Hire America’s Skanda Amarnath tweets to potentially the most important data point of the week: Friday’s employment cost index data.
CBO DESIGN – AP’s Josh Boak: “The Congressional Budget Office said Wednesday that the end of pandemic-era spending, rapid economic growth and higher tax revenues have kept the federal debt this year lower than it was provided. But the nonpartisan office also includes a warning in its 30-year outlook about how the debt will soon climb to new levels that could eventually endanger the U.S. economy. The estimates show the complex politics underlying government finances. Debt-related pressures have eased somewhat in the short term for lawmakers, although they continue to loom as a worrisome risk for future Congresses and presidents.”
— CBO Director Phil Swagel will discuss the latest forecasts this afternoon in a virtual discussion hosted by the Peter G. Peterson Foundation at 3 p.m.
NO ESTRADA, BUT WE HAVE FRIES – From POLITICO’s Gavin Bade: “The Senate on Wednesday voted 64-33 to approve a massive package of semiconductor manufacturing subsidies and scientific research funding known as the chip plus science bill, sending legislation to the House of Representatives that that Democratic leaders hope will be a swift transition.”
DÉTENTE – After months of protracted negotiations, the West Virginia Senate. Joe Manchin and Senate Majority Leader Chuck Schumer announced a deal on a bill that includes energy and tax policy — setting up a vote that could come as soon as next week. According to POLITICO’s Burgess Everett, the deal “includes roughly $370 billion in energy and climate spending, $300 billion in deficit reduction, three years of Affordable Care Act premium subsidies, prescription drug reform and significant tax changes.”
DIGITAL CURRENCY AND CENTRAL BANK — House Financial Services Chairwoman Maxine Waters (D-Calif.) and ranking Republican Patrick McHenry of North Carolina said Wednesday that they will continue negotiations with the Biden administration on bipartisan stablecoin legislation and that they hope bring the bill forward for an increase in September. While the move is widely expected to put Federal Reserve guardrails around non-bank stablecoin issuers, Waters also said the bill would direct the Fed to “research and develop a central bank digital currency so that we remain globally competitive “.
Federal Reserve Officials have been exploring the viability of a digital dollar for more than a year, and while the central bank has yet to take a position on how to move forward, Fed Vice Chairman Lael Brainard warned Congress earlier this year that a delay could put the USA. at a disadvantage.
MORE FLAWS, MORE PROBLEMS — From POLITICO’s Josh Sisco: “The Federal Trade Commission on Wednesday filed suit to block Facebook owner Meta from buying the maker of a virtual reality fitness app, the latest sign of aggressive antitrust action by the agency.”
From the NYT’s Mike Isaac: “On Wednesday, Meta, the company formerly known as Facebook, reported a 1 percent drop in quarterly revenue from last year. It was the first time the social media giant’s revenue had fallen since it went public a decade ago, as it faces increased regulatory scrutiny and a troubled economy as it tries to build a new frontier of digital communications. .”
Deleted? – By Bloomberg’s Lydia Beyoud: U.S. and Chinese officials must reach a deal “very soon” on access to audit working papers for Chinese companies to avoid delisting from U.S. stock exchanges, the chairman of the Securities and Exchange Commission said Wednesday with Value and Exchange Gary Gensler.
FED EYES FREEZER CASE – From Jeanna Smialek and Emily Erdos of the NYT: “If consumers and companies expect rapid inflation to be a permanent feature of the US economy, they may begin to change their behavior in ways that cause prices to continue to rise. Consumers may begin to accept price increases without bargaining, workers may demand higher wages to cover rising costs, and businesses may raise prices both to cover their higher labor bills and because they think customers will bear the higher prices.
This is something the Fed is looking at closely, Powell said during yesterday’s press conference:[When people] start to factor high inflation into their decisions on a sustained basis – when that actually starts to happen, and we don’t think that’s happened yet – it’s just going to be a lot harder and the pain is going to be a lot more. “
THE MARKET REACTS – From Bloomberg’s Rita Nazareth: “About 85% of S&P 500 companies rose, while the Nasdaq 100 rose more than 4%, the most since November 2020. Two-year U.S. yields fell as much as 10 basis points. Expectations for the pace of Fed hikes eased – with swaps markets pointing to 58 basis points of September tightening.”
MAJOR HEALTHCARE COST DRIVER — From WSJ’s David Wainer: “The traveling nurse market may finally be coming back to earth. HCA last Friday posted second-quarter profit numbers that beat Wall Street estimates and, most importantly for investors, reaffirmed its full-year outlook, sending its stock up more than 11%. Tenet Healthcare, another hospital group that reported positive results after the market closed on Thursday, rose 6%.
TECHNICAL SKILLS WRITE IN REAL ESTATE — From Bloomberg’s Kurt Wagner: “Twitter Inc. is reducing its physical office space in several global markets, including San Francisco, New York and Sydney, as the company cuts costs and relies more on remote work.”
Russia sent less gas to Europe on Wednesday in a further escalation of an energy standoff between Moscow and the European Union that will make it harder and more costly for the bloc to fill storage ahead of the winter heating season. – Reuters’ Christoph Steitz and Nina Chestney
Two US senatorsplan to introduce legislation as early as this week that would give merchants the ability to direct Visa Inc. credit card transactions. and Mastercard Inc. through alternative networks. —Bloomberg’s Jennifer Surane and Laura Litvan
