Chief Economist Scott Brown discusses the latest market data.
As expected, the Federal Open Market Committee (FOMC) announced it would begin reducing (“tapering”) the monthly pace of asset purchases – currently $120 billion – by $15 billion per month but could go faster or slower depending on economic conditions.
“Inflation remains elevated,” the FOMC noted, but largely due to factors that are “expected to be transitory.” Supply/demand imbalances have boosted inflation in some sectors, but easing supply constraints are expected to support growth and reduce inflation.
In his press conference, Fed Chair Powell repeated that the criterion for an increase in short-term interest rates is more stringent than for tapering, but admitted that reaching full employment by the middle of next year was “certainly within the realm of possibility.”
The October Employment Report was stronger than expected. Nonfarm payrolls rose by 531,000 (median forecast of economists: +450,000), with a net +235,000 revision to August and September. The unemployment rate fell to 4.6% from 4.8%, but labor force participation held steady at 61.6%, the same as a year ago. The ISM surveys reflected strength in October, and the Services Index hit a record high. Both reports indicated elevated input price pressures and supply managers reported ongoing supply chain difficulties. Unit motor vehicle sales picked up to a 13.0 million seasonally adjusted annual rate (vs. 12.2 million in September), but much of the increase appeared to come from lower inventories.
Next week: The Consumer Price Index will be boosted by higher gasoline prices in October. Components of core inflation should be mixed but mostly higher. (Used vehicle prices were reported to have risen sharply.) The bond market will be closed for the Veterans Day holiday.