We had two significant data releases on the 11th of October. The PPI data release and the FOMC Meeting Minutes. Let’s dwell on PPI first. So The US Bureau of Labor Statistics released the PPI data for September. The PPI for final demand increased 0.5% in September, which was slightly higher than the expected increase of 0.4%. The PPI for final demand goods rose 0.9%, and the index for final demand services advanced 0.3%.
The PPI data release has a number of potential repercussions for the economy.
First, the data suggests that inflation is still a concern. The PPI has increased by 8.5% over the past 12 months, which is the highest rate of inflation since 1979.
Second, the data could lead to higher prices for consumers. Businesses typically pass on higher costs to consumers in the form of higher prices. If the PPI continues to rise, consumers can expect to pay more for goods and services.
Third, the data could lead to lower economic growth. Higher inflation and prices can reduce consumer spending and business investment. This could lead to a slowdown in economic growth.
The Fed is likely to take note of the PPI data release. The Fed is already raising interest rates in an effort to combat inflation. The PPI data release could lead the Fed to raise interest rates more aggressively.
Now for the The Federal Open Market Committee (FOMC) released the minutes of its September 20-21 meeting on October 11, 2023. The minutes provide insights into the FOMC’s decision to raise the federal funds rate by 75 basis points at that meeting.
The minutes show that the FOMC is “highly attentive to inflation risks” and is committed to bringing inflation back down to its 2% target. The FOMC members noted that inflation remains “unacceptably high” and that the labor market remains “tight.”
The FOMC members also discussed the risks of a recession. The minutes show that the FOMC members are “acutely aware of the downside risks to the economic outlook” and that they are “committed to using their tools to help achieve maximum employment and price stability.”
The FOMC members agreed that the federal funds rate will need to be increased further in order to bring inflation down. However, the minutes suggest that the FOMC is prepared to slow the pace of its rate hikes. The minutes show that the FOMC members “generally agreed that it likely would be appropriate to slow the pace of future policy rate increases.”
The outcome of the FOMC meeting minutes is likely to have a significant impact on the US economy. Higher interest rates will make it more expensive for businesses to borrow money and invest, which could slow economic growth. Higher interest rates will also make it more expensive for consumers to borrow money to buy homes and cars, which could dampen consumer spending.
Overall, the FOMC meeting minutes suggest that the Fed is committed to bringing inflation down, but that it is willing to slow the pace of its rate hikes in order to minimize the risk of a recession. In recent days, central bank officials have indicated that they may not need to enact additional hikes as Treasury yields have risen sharply on their own, tightening financial conditions. That in turn has helped assuage market fears, leading stocks higher this week. The Fed targets 2% annual inflation but doesn’t expect to get there for several years. Market pricing indicates the central bank is likely done raising rates in this cycle, even though officials have one more increase penciled in before the end of the year.