While inflation has moderated since June, it remains stubbornly high, and the Federal Reserve took further action by raising its benchmark rate again in September. Shocks happening abroad are the main contributor, and speculation about the world entering recession early next year has risen.
The war in Ukraine has led to a dramatic increase in gas prices, with Europe facing limited supply to heat homes and power factories this winter. This will impact nearly every good produced in the region, from wine glasses to fertilizer. In the U.S., housing costs are likely to keep inflation higher.
Sources of Stability:
Employment remains strong, with the U.S. adding an average of 440,000 jobs a month this year. Consumers are seeing some relief at the gas pump as the price of oil has dropped. Home prices are also cooling, and lumber prices have fallen more than 70% from their March peak.
In the Spotlight:
The big paradox to the outlook for slower growth is the strong labor market, prompting the key question of whether the Fed’s actions to tame inflation will push up the unemployment rate. At the end of July, there were 11.2 million job openings compared with six million people unemployed in August, according to Bureau of Labor Statistics data. This has led to severe shortages in many occupations. Even so, the unemployment rate ticked up slightly in August, and the Fed raised its unemployment rate prediction for 2023 from 3.9% in June to 4.4% as of its September FOMC meeting.