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THE BIG LIE!

The Inflation Reduction Act Price Jumps From $385 Billion to Over $1 Trillion

Penn Wharton revised its estimate of the cost of the inflation reduction act significantly higher based on Biden's actual implementation of the deal.

MISH APR 27, 2023

https://mishtalk.com/economics/the-inflation-reduction-act-price-jumps-from-385-billion-to-over-1-trillion

But we’re crashing the dollar so it’s a moot point!!!

More on the so-called Inflation Reduction Act

I thought this was hilarious seeing one of Lyin' Biden's Green New Deal Climate propagandists backed up against the wall spouting non-answers and gibberish. Well done Sen. John Kennedy...well done sir.

$50 Trillion For What? Kennedy Dumbfounds Biden Climate Peddler In Fiery Exchange Over 'Carbon Neutrality'

BY TYLER DURDEN

If we spend $50 trillion to become carbon neutral in the U.S. by 2050, you’re the Deputy Secretary of Energy, give me your estimate of how much that is going to reduce world temperatures?

I know the answer that the Deputy Secretary of Energy David Turk did not know…..It will reduce world temperatures by zero degrees! I also know the solution….we need to spend another 50 trillion!

And you absolutely cannot convince me this isn't being done on purpose. We're f**ked 6 ways to Sunday.

Get your spot on the bench for the guy with the wrench!

Don't forget that you'll cook your food (bugs probably) and heat your home with electricity too and like it.
Them fossil fuels have got to go.

Why do you think that with such certainty? Here is an opinion based in part on different economist's beliefs. Not saying he is right. Not saying he is wrong. No way to know for sure until enough time passes and we can look backwards on this one. It's just a prediction game with insufficient data and equations before an event occurs. On the other hand, economics can be dead-on accurate about certain things when the data is known. BTW, he did win the Nobel Prize in Economics, if that even matters...



What’s Driving Dollar Doomsaying?


By Paul Krugman
NYT Opinion
You’re reading the Paul Krugman newsletter, for Times subscribers only. A guide to U.S. politics and the economy — from the mainstream to the wonkish.

Talk of “de-dollarization” and its dire consequences for the U.S. economy seems to be all over the place lately. Somehow, my previous efforts to dampen the frenzy haven’t worked.

Where’s this coming from? Much of it is from the usual suspects, such as the crypto cult, people for whom Bitcoin is the answer regardless of the question. Some of it, I think, is coming from Putin sympathizers, who want us to believe that America will be punished for, as they see it, “weaponizing” the dollar against the invasion of — I mean, special military operation in — Ukraine.

Elon Musk is among those warning that weaponizing the dollar will destroy its reserve currency status, because of course he is.

But what inspired me to write about the subject (again) is that lately more sober voices, who should know better, are sounding the alarm. International relations experts like Fareed Zakaria warn that the dollar is a superpower we’re in danger of losing. Even economic analysts like Michael Pettis, whom I’ve found to be a valuable source of insights on China, seem to believe that dollar dominance is the only reason America can run persistent large trade deficits.

All of this is very odd. Even if you believe that the dollar’s dominance is in imminent danger — which you shouldn’t — a look at what that dominance actually entails makes it clear that the importance of controlling the world’s reserve currency is greatly overrated.

What do we mean by saying that the dollar is a dominant currency? There’s a very nice summary in the first few pages of a 2021 paper by Gita Gopinath, now a top official at the International Monetary Fund, and Jeremy Stein. As they note, much of world trade is invoiced and settled in U.S. dollars; many banks based outside the United States nonetheless offer dollar-denominated deposits; many non-U.S. corporations borrow in dollars; central banks hold a large share of their reserves in dollar assets; and maybe (the evidence here is weaker) interest rates are lower, other things equal, when you borrow in dollars than when you borrow in other currencies.

This is all very impressive. But how much of it redounds to the benefit of the U.S. economy? Why, exactly, should America care whether a contract between Chinese exporters and Brazilian importers is written in dollars as opposed to yuan or reais?

A lot of what’s written about this subject begins with the assertion that the special role of the dollar gives America a unique ability to run a large balance of payments deficits, year after year, presumably because the dollar’s status forces other countries to accept our money. But even a quick look at the data shows that this claim is false. Yes, America has run persistent deficits, but so have other countries. We’re not even at the top of the league table.

Let’s look at the balance of payments on current accounts — the trade balance broadly defined, so as to include services and investment income, such as interest payments, as well as trade in goods. And let’s look at advanced economies that have their own currencies — that is, leave out members of the euro area. Here’s what we get for the decade before Covid struck:

(graph)

It turns out that there are multiple nations able to run persistent deficits, and several have run bigger deficits relative to the size of their economies than we have. Britain, which has the deepest deficits, used to own a globally dominant currency — but the pound sterling stopped playing any important international role generations ago. The Australian dollar and the Canadian dollar have never been widely used outside their issuing nations.

So where does the idea that dollar dominance gives us a special ability to run deficits come from? I guess it’s just something that sounds as if it should be true, which I’ll come back to in a minute. But first, are there any other ways in which America gains special advantages from the dollar’s dominance?

Well, it’s possible that the worldwide use of the dollar creates the perception that dollar bonds are safe assets, so that America can borrow more cheaply than other nations. It’s hard to tell, because there are multiple factors affecting interest rates — and U.S. borrowing costs are not, in fact, noticeably lower than those of other advanced countries. If there’s any effect, however, it must be small. I won’t go through the arithmetic, but I can’t see any way that, considering all this together, dollar dominance is worth more to America than a fraction of 1 percent of G.D.P.

Why, then, are people making such a big deal over the possible end of dollar dominance? The answer, I believe, is that global currency issues come across as glamorous and mysterious, so people imagine that they must be important — and yes, some people like to talk about them because they think it makes them sound sophisticated. You have to actually work with the numbers to appreciate how little is really at stake.

Which means that I’m almost reluctant to add that reports of the dollar’s coming demise are also probably greatly exaggerated. The aforementioned paper by Gopinath and Stein offers a detailed analysis of one channel through which the dollar maintains its dominance, adding to a long literature that includes, among other things, some old papers by yours truly. The bottom line in most of this analysis is that the dollar is widely used because it’s widely used — that all of the various roles the dollar plays create a web of self-reinforcement, keeping the dollar pre-eminent.

The point is that tugging on one or two strands of this web isn’t likely to cause it to unravel. Even if some governments express a desire to see payments conducted in other currencies, it’s not at all clear they can make that happen, since we’re mostly talking about private-sector decisions. And even if they can make partial de-dollarization stick, all the other advantages of the dollar as a banking and borrowing currency will remain.

So ignore all the dollar doomers out there. Or better yet, consider what their hyping of a nonissue says about their own judgment.

Paul Krugman 🤣🤣🤣

The rolling recession still needs to broaden.

The Richcession Keeps Rolling

The pandemic-triggered unwinding of inequality continues


WSJ
The chances that the U.S. will plunge into a recession this year are slipping. But the richcession? It’s still rolling.

The economy keeps chugging along, adding jobs and growing despite still-high inflation and Federal Reserve rate increases. But for many richer Americans, it probably feels like a recession has already begun.

The Commerce Department last Thursday revised higher its assessment of first-quarter gross domestic product—it now says GDP grew at a 2% annual rate, versus its previous estimate of 1.3%. Economists meanwhile are busy moving up their estimates for second-quarter GDP growth.

Yet while the better-off are, by definition, better off than the poor, they have been hit harder by layoffs, have been less able to secure wage increases that keep up with rising prices and have been more affected by the slump in profits that began to take hold last year. In other words, it is still looking like a richcession, where amid economic uncertainty, the rich feel more of the sting. And this, in turn, is beginning to have knock-on effects, with richer Americans reining in their spending relative to others.

Layoffs are still making headlines, and they are still disproportionately affecting higher-earning workers. By the count of outplacement company Challenger, Gray and Christmas, about one-third of layoffs announced by companies this year have come from tech firms such as Facebook parent Meta Platforms, where the median employee made $296,320 in 2022. Job cuts elsewhere have been aimed at higher-paid workers, such as at Ford Motor, where planned layoffs are concentrated in the engineering ranks. Meanwhile, overall layoffs have remained low. Labor Department figures showing that even though the number of people in the workforce is higher than before the pandemic, fewer people are receiving unemployment benefits.

In a recent analysis, economists at Bank of America Institute found that in the 30 states that directly deposit unemployment benefits into laid-off workers’ accounts, the number of benefit-recipients in households earning $125,000 a year or more was up 40% in April from a year earlier. This was more than five times the increase in households earning less than $50,000. Moreover, the 30-state sample might understate the increase in high-wage earners receiving unemployment benefits because it didn’t include California (which issues benefits via prepaid debit cards), home to many of the tech companies where layoffs have been concentrated.

A tight labor market and in-demand skills mean that many well-off workers who lose their jobs can probably find new jobs fairly quickly—but maybe not at the same level of pay. Meanwhile, labor demand from industries that employ lower-paid workers remains elevated, and that is helping drive wage gains. A wage tracker developed by the Federal Reserve Bank of Atlanta shows that the 12-month moving average of annualized monthly wage growth for workers in the bottom quartile by income was 6.8% as of May, compared with 5.6% for workers in the top quartile. Economists David Autor, Arindrajit Dube and Annie McGrew estimate low-wage workers’ ability to switch into higher-paying jobs has unwound one-quarter of the wage inequality between top and bottom earners that built up in the four decades before the pandemic.

Wages aren’t the only way the rich make money, of course. Higher-paid workers often receive hefty bonuses, and in many cases these, too, have fallen. New York state reported that the average bonus paid to New York City securities-industry employees in 2022 was $176,700—still more than enough to buy an orchestra’s-worth of tiny violins, but down 26% from a year earlier, and after adjusting for inflation, below prepandemic levels.

Consider also variations in different kinds of income. In the first quarter, Commerce Department figures show that the overall level of compensation paid to U.S. employees was up 20.4% from the fourth quarter of 2019, driven by rising wages and employment. Transfer receipts—payments for Social Security, Medicare and the like—were up 28%, a reflection of baby-boomer-generation retirements plus many of these benefits’ cost-of-living adjustments to keep up with inflation. But proprietors’ income, which goes to sole business owners and partnerships such as law firms, was up a smaller 17%, while personal-income receipts on assets, such as dividends, were up just 9%. Of course, poor workers are more reliant on wages for income than richer ones, and poorer retirees are more reliant on Social Security payments than richer ones.

Constraints on the rich appear to be driving shifts in behavior. Bank of America Institute found that credit- and debit-card spending on discretionary items by higher-income households in April was below year-earlier levels, while spending for other households was up. That is consistent with reports from Walmart, which says it has been gaining market share among high-income customers, while spending on luxury goods by so-called aspirational shoppers has reportedly slowed. One reason this matters, points out Bank of America Institute senior economist David Tinsley, is that households in the top 40% of income account for more than 60% of spending.

A full-blown recession might or might not arrive. But the richcession could still place a drag on the overall economy in the meantime.

CPI Report Shows Inflation Eased to 3% in June

Fed officials are still likely to raise interest rates when they meet later this month


WSJ
U.S. inflation eased last month to its slowest pace in more than two years as underlying price pressures moderated more than expected.

The consumer-price index climbed 3% in June from a year earlier, the Labor Department said Wednesday, sharply lower than the recent peak of 9.1% in June 2022 and down from 4% in May. Inflation was last close to 3% in March 2021.

Still, inflation remains above the Federal Reserve’s 2% target. Fed officials have signaled that they are likely to raise interest rates to a 22-year high at their July 25-26 meeting, following recent signs of stronger-than-anticipated economic activity. Wednesday’s inflation report isn’t expected to change that outcome.

Last month officials kept their benchmark federal-funds rate in a range between 5% and 5.25%. That was their first pause after 10 consecutive increases since March 2022, when they raised it from near zero. Most of them in the June meeting penciled in two more hikes this year.

So-called core consumer prices, which exclude volatile food and energy categories, rose 4.8% in June from a year earlier, the slowest pace since October 2021 and down from 5.3% in May. Economists had estimated that core prices rose 5%.

Overall consumer prices increased a seasonally adjusted 0.2% in June from the prior month, compared with May’s 0.1% gain. Core consumer prices climbed 0.2%, the smallest one-month increase since August 2021, suggesting underlying price pressures are gradually easing. Prices for used cars and airfare fell sharply, while prices for car insurance and recreation rose. Rent increased in June, though at the slowest one-month pace since early 2022.

Fed officials are focused on cooling stubbornly high core inflation, and see core prices as a better predictor of future inflation than the overall inflation rate.

The Labor Department report could help strengthen the case of Fed officials who say the central bank has done enough for now to contain price pressures and that they should allow the effects of their cumulative increases to work their way through the economy.

Officials have two additional months of inflation data before their September policy meeting, providing time to see if Wednesday’s figures are the start of a meaningful trend in lower inflation.

Earlier increases in car prices, strong demand for labor-intensive services and an earlier surge in housing-rental prices have contributed to core inflation.

“Where inflation is proving sticky is in services—getting haircuts, getting your car repaired, buying car insurance,” said Leo Feler, chief economist at Numerator.

The U.S. economy has remained resilient this year, defying predictions of an economic downturn. Hiring slowed in June but was still strong, though consumer spending cooled in May compared with the prior month. U.S. economic output rose at a 2.3% annual rate during the recently ended second quarter, according to the Atlanta Fed’s most recent estimate.

While inflation is lower than a year ago, it continues to take a toll on many consumers.

Ali Salim, 34 years old, said rising prices for rent and gasoline have squeezed his budget. His landlord raised the rent 24% last year on his one-bedroom apartment in a Seattle suburb, then another 10% this year, he said.

Salim said he decided to move to a new, smaller apartment, which has fewer amenities and is 8 miles further away from the office where he works as a solutions architect at a tech company.

“I’m going to have to drive further and spend a bit more on gas, which is another pain point,” he said. Washington state has the highest gasoline prices in the nation at an average of $4.96 a gallon of regular unleaded, according to OPIS, an energy-data and analytics provider, well above the national average of $3.54 a gallon.

Salim said increased expenses leave him saving about 40% of his salary, compared with about 60% before the rent increase last year.

“My goal was to own a home within the next five years,” he said. “With me saving so much less, I don’t know if I’ll be able to do that.”

Krugman completely missed that we have been in a rolling recession for a year.

I expect as much from him. Just glad to see he has still managed to stay employed.

Big-Bank Earnings Show Signs of Soft Landing

Profits from JPMorgan, Wells Fargo make it easy to forget there was a banking crisis this year



WSJ
The biggest U.S. banks presented a picture of a resilient economy on Friday, with consumers and businesses continuing to spend and borrow even after a lightning-fast rise in interest rates.

JPMorgan Chase’s profit soared 67% in the second quarter from a year earlier and Wells Fargo’s WFC -0.34%decrease; red down pointing triangle jumped 57%, lifted by the income they earned lending out money at higher rates. Citigroup’s C -4.05%decrease; red down pointing triangle net interest income was a bright spot, though profit fell 36%. All three banks beat analysts’ expectations for profit and revenue.

The three banks collectively grew their loan books from a year earlier, thanks partly to an increase in credit-card balances, which padded revenues. The banks lifted their forecasts for their 2023 lending profits, proof they don’t expect to see a major shift in borrowing or deposits.

Analysts and investors largely agree that the economy has been slowing since the Federal Reserve began lifting rates last year. Still, Friday’s results made it easy to forget there was a banking crisis this year.

The higher interest rates that pushed Silicon Valley Bank, Signature Bank and First Republic Bank to failure have largely been a benefit for the megabanks, which all attracted customers reaching for safety. JPMorgan’s purchase of First Republic, with government aid, boosted its consumer and commercial businesses and gave the bank an immediate $2.7 billion gain.

When JPMorgan Chase bought First Republic Bank in May, all eyes were on its CEO, Jamie Dimon. Here’s how the executive’s strategy for managing risk propelled him to the top of the banking world. Photo illustration: John McColgan
The picture could be less rosy for smaller and midsize lenders, which will start reporting results next week. While banks of all sizes are paying more in interest to keep yield-hungry customers from yanking their deposits, the extra expense can be hard on smaller banks.

Bank stocks have diverged this year. JPMorgan, Wells Fargo and Citi are all up in 2023. Friday, JPMorgan rose 0.6%, while Wells Fargo fell 0.3% and Citigroup dropped 4%. The broader KBW Nasdaq Bank Index is down 18% for the year and fell Friday, a sign that investors are worried about smaller banks’ deposit costs.

Some regional banks have lowered their second-quarter earnings forecasts in recent weeks, saying they underestimated how much they would have to shell out on deposits.

While executives at all three big banks said they continue to believe the economy is strong, especially when looking at U.S. consumers, they all cautioned there is too much uncertainty to be sure of the future.

Borrowing from banks is picking up steam from its pandemic lull. WSJ’s Telis Demos explains why it’s coming just in time to offset some of the pinch banks are feeling from higher interest rates. Photo: Angus Mordant/Bloomberg
“I don’t know whether it’s going to be a soft landing, a mild recession or a hard recession,” JPMorgan Chief Executive Jamie Dimon told reporters.

Loan defaults increased slightly but remain historically low. The big banks set aside some money for potential future defaults, particularly in commercial real estate, but the charges weren’t as large as what they took when anticipating steep economic declines.

Bankers and regulators say that the March crisis has receded, and recent economic data has spurred hopes the worst-case economic scenarios they feared won’t materialize.

The optimism is showing up in markets too, with investors embracing risk-on trades they had avoided for much of 2022. Megacap tech stocks are up, with the Nasdaq Composite just wrapping up its best first half to a year since the 1980s. Bitcoin rose more than 80% in the first half of the year, even though regulators sued the biggest crypto exchanges.

“The U.S. economy continues to perform better than many expected and although there will likely be continued economic slowing and uncertainty remains, it is quite possible the range of scenarios will narrow over the next few quarters,” Wells Fargo CEO Charlie Scharf said on a call with analysts.

JPMorgan, Wells Fargo and Citi together earned $49 billion in net interest income last quarter, up 31% from a year earlier, as loans increased and they charged more for them.

Americans Are Borrowing Again, Which Is Great News for Big Lenders
Customers at all three banks spent more on their credit cards, and more borrowers carried over balances each month. Loans to businesses were up at JPMorgan and Wells Fargo.

Even mortgage originations, which are heavily impacted by rates, increased from earlier in the year at Wells and JPMorgan, though they remained down sharply from a year ago.

“Overall, I’d say we are seeing a more cautious consumer, but not necessarily a recessionary one,” Citi CEO Jane Fraser said.

But the going is getting tougher even for the big banks.

All three banks had to pay more to depositors to keep them from moving money into higher-yielding money-market funds, after years of paying next to nothing on consumer checking accounts.

And customers still pulled money. Deposits fell 3% from a year earlier at JPMorgan and 6% at Wells Fargo. They were roughly flat at Citi.

Those results spooked investors across the banking sector, where smaller and less-diversified banks have a harder time offsetting those costs. Regional banks slumped Friday and custody banks State Street and Bank of New York Mellon dropped sharply.

Meanwhile, loans might sour as well if higher rates take a bigger toll on consumers and businesses.

“We’re still very early in the cycle. This is going to play out over an extended period,” said Mike Santomassimo, Wells Fargo’s chief financial officer, on a call with reporters. The bank set aside nearly $1 billion to cover expected bad loans, largely in commercial real estate.

JPMorgan executives characterized the slight increase in loan defaults as more historically normal, not a concerning deterioration.

Banks also are becoming more selective about the loans they make. “The economy has slowed, and we’ve taken some credit tightening actions,” Scharf said on the analyst call.

Wall Street businesses remained in the doldrums. Investment banking, which includes fees from mergers and selling corporate stock and debt, fell 6% from a year earlier at JPMorgan and 24% at Citi. Trading declined 10% at JPMorgan and 13% at Citi.

“People should feel that the economy is on a pretty solid footing, which is surprising given the pace of interest rate hikes,” said Jean Rosenbaum, senior portfolio manager at GYL Financial Synergies.

Well being on the front line of the supply chain I think I know a thing or two about economics. I know that fright rates suck. In fact, we are in a period of all time low spot transportation rates. In addition, store shelves have many more empty spots than this time a few years ago.

Then consider the fact that many meat packing plants are running behind. I go to about 8-10 Tyson pork processing plants. I also haul from few IBP and Cargill beef plants as well as a number of Sanderson Farms chicken plants. These are some of the largest meat packing plants in the US. Since Christmas of 2021 I have yet to leave on time. In fact, I’m still waiting on a load of chicken that was supposed to be ready day before yesterday.

From this one can draw a few conclusions. First, unemployment numbers are based off claims made. Unfortunately, it does not measure the true number of unemployed because it doesn’t take into account those that stopped filing for unemployment benefits regardless of the reason. So that particular stat has to be taken with a grain of salt.

The supply chain has shrunk. That is evidenced by the fact that a) store shelves have less product; b) those shelves are lighter because product isn’t being shipped at a rate fast enough to replenish and c) freight rates are down because there are fewer loads because there is fewer product to move. But, before one goes thinking that the reason rates are down is be a there are more trucks on the road than last year it would be wise to consider that there are 11,000 fewer active operating authorities (ie CMV federal registrations) than at this time last year.

Bidenomics won't save us, it won't “restore the American Dream”, it's not "saving the soul of America".

Bidenomics is anti-free market top-down meddling in the economy by politicians, bureaucrats, banksters and other cronies who only care about stuffing their pockets with loot and sticking it to the rest of us.

Bidenomics is nothing more than barfing up more socialism and fascism as its means to its Utopian ends.

You don't have to be an economist to smell the stench, to see the cracks, you can fudge all the numbers you want and pretty them up, we've seen this movie before, we know how it ends.

You've got to be dumb as Bidenomics to believe government can run like a business, and run the economy.

I still remember vividly the supposed facts, and wide spread consensus by the experts that "the economy is strong" just before the 2008 crash.


Bidenomics Is Yet Another Version of Failed Industrial Policy

07/12/2023 Connor O'Keeffe

That reminds me I should have gotten my degree in bloviating then I could be an accepted speaker……at least on a discount cigar forum.

Damn it!!

I barely made it out of the 6th grade.

I get the context already 🤣

So, I guess Robert was saying you can’t handle the truths of Paul Krugman.

No Robert was flicking me crap and I knew it…. I had it coming.

Economists Are Cutting Back Their Recession Expectations

Forecasters still expect GDP to eventually contract, but later, and by less, than previously


WSJ
Easing inflation, a still-strong labor market and economic resilience led business and academic economists polled by The Wall Street Journal to lower the probability of a recession in the next 12 months to 54% from 61% in the prior two surveys.

While that probability is still high by historical comparison, it represents the largest month-over-month percentage-point drop since August 2020, as the economy was recovering from a short but sharp recession induced by the Covid-19 pandemic. It reflects the fact that the economy has kept growing even as the Federal Reserve has raised interest rates and inflation declined.

In the latest WSJ survey, economists expected gross domestic product to have grown at a 1.5% annual rate in the second quarter, a sharp uptick from 0.2% in the previous survey. They still expect GDP to eventually contract, but later, and by less, than previously. They expect the economy to grow 0.6% in the third quarter, in contrast to the 0.3% contraction expected in the prior survey, followed by a 0.1% contraction in the fourth. Forecasters said GDP would increase 1% in 2023, measured from the fourth quarter of a year earlier, double the previous forecast of 0.5%.

Nearly 60% of economists said their main reason for optimism about the economic outlook is their expectation that inflation will continue to slow. The Labor Department’s consumer-price index climbed 3% in June from a year earlier, sharply lower than the peak of 9.1% in June 2022 and the slowest in more than two years. The Fed’s preferred inflation measure—the annual change in the personal-consumption expenditures price index excluding food and energy—has fallen from 5.4% in March 2022 to 4.6% in May. Economists expect it to reach 3.7% by the fourth quarter of this year, though that is still well above the Fed’s 2% target.

Pathway to a soft landing
Many economists first began in the middle of last year to project a recession when persistently high inflation prompted the Fed to raise rates at the most aggressive pace in nearly three decades. Historically, lowering the inflation rate materially has always involved higher unemployment and a downturn, and few economists thought this time would be different.

Now, a pathway to achieve a “soft landing,” or getting inflation down without a recession, is “back on the table,” said Sean Snaith, the director of the University of Central Florida’s Institute for Economic Forecasting. “At the beginning of this year it seemed more of a pipe dream,” said Snaith. Now, “it seems a recession keeps slipping, slipping, slipping into the future.” Snaith has lowered the probability of recession to 45% from 90% in April.

On average, economists still expect the labor market will lose 10,551 jobs a month in the first quarter of 2024, broadly unchanged from their previous forecast. But unlike in the April survey, economists no longer expect job cuts in the third and fourth quarter of this year. They expect employers will add jobs in the second and third quarters of next year, suggesting any downturn will be mild.

“Inflation has slowed remarkably already, and we believe will continue to do so because spending growth is slowing substantially and the growth in labor force is helping service providers,” said Luke Tilley, chief economist at Wilmington Trust.

Still, stronger-than-expected economic growth this year will also likely result in the Fed keeping interest rates higher for longer, according to the Journal survey.

Economists expected the midpoint of the range for the federal-funds rate will peak at 5.4% in December, up sharply from a 5% forecast in the last survey. The latest prediction implies at least one more 25-basis-point increase by the Fed.

More rate increases, later rate cuts
The Fed last month held its benchmark federal-funds rate steady in a range between 5% and 5.25%, its first pause after 10 consecutive increases since March 2022. Market participants overwhelmingly expect the central bank will raise rates by a quarter-percentage point at its July 25-26 meeting, according to the federal-funds futures market.

Economists are also pushing back their estimates for when the Fed will eventually start cutting rates. In the latest survey, only 10.6% of economists expected a rate cut in the second half of this year, down from 36.8% in the last survey. The majority of economists, nearly 79%, expected the Fed will cut rates in the first half of 2024 as the unemployment rate rises. Some 42.4% expected that first cut will come in the second quarter.

Economists are relatively sanguine about the impact of the end of the government’s pandemic-era pause on student-debt payments, which allowed millions of Americans to avoid a big monthly bill for more than three years.

The resumption of student-loan payments is expected to have a relatively minor impact this fall, shaving 0.2 percentage points, annualized, from consumer spending growth, measured from the third quarter to the fourth quarter of this year.

“We will likely see some slowing in spending growth toward the end of this year as a result of the resumed payments denting certain households’ ability to consume, but we do not think the end to the payment pause will be widespread enough to have a significant effect on overall U.S. household spending,” said Wells Fargo chief economist Jay Bryson.

The survey of 69 economists was conducted July 7-12. Not every economist answered every question.

What Markets Are Saying About the Fight Against Inflation

Investors greet inflation progress with cautious optimism


WSJ
New signs of cooling inflation sparked market gains last week. But is the pain from inflation—and the Federal Reserve’s interest-rate-raising campaign to fight it—really over?

Here is what market gauges are showing:

Investors have long expected inflation to fall back to the Fed’s 2% target relatively quickly, a bet that is starting to look better now than it did a few months ago.

Past moments of optimism have met with disappointment. The Fed has repeatedly raised its own interest-rate forecasts since early 2022. Investors have often been hesitant to follow suit but have ultimately been dragged along for the ride.

The Fed’s preferred inflation measure—the core personal-consumption expenditures price index, which strips out volatile food and energy items—stood at 4.6% in May, still well above its 2% target. But there have been signs of progress, with even some easing in non-energy or housing services—a key category for the Fed sometimes known as “supercore” inflation.

One note of caution for investors is that progress on inflation has come despite a very tight labor market. Many believe that wage increases, in particular, will need to subside for inflation to come fully under control.

Investors do expect interest rates to fall in the coming years, but their forecasts don’t necessarily include a recession.

The Fed’s benchmark federal-funds rate is expected to fall gradually over the next decade to a long-term level that neither stimulates nor slows growth, according to an analysis of Treasury yields by Benson Durham at Piper Sandler. By comparison, Australian bond yields suggest a more concerted effort to boost the economy over the next couple of years, with rates dipping below their long-term expected level before climbing back later in the decade.