The American economy has shown resilience in the face of rising interest rates as consumers, bolstered by excess savings built up during the pandemic, have continued to spend. But how long can these savings last? According to our analysis of revised data from the Bureau of Economic Analysis, ... READ MORE >
Joseph Brusuelas
Oil price increase to exert limited impact following attack on Israel
Oil prices surged following the surprise attack by Hamas on Israel and Israel’s counterstrike over the weekend. After a knee-jerk reaction upon the open of trading around the world, prices have been well behaved and should abate as the shock of the attack, as deadly as it is, abates. It is ... READ MORE >
The great rate reset: The end of easy money, rising yields and the onset of a new era
In the Federal Reserve’s September Summary of Economic Projections, policymakers indicated that the long-run neutral federal funds rate, or what economists refer to as r-star, has moved higher toward 3%. The implied logic of that forecast has prompted investors and market participants to reset ... READ MORE >
Chart of the Day: Falling oil and gas demand implies inflation relief
Easing demand for oil and gasoline should provide relief in top-line inflation in October and November. Falling wholesale gasoline prices imply a decline of 12% in retail gasoline prices in the coming weeks from its current level of $3.79 to roughly $3.34 per gallon. This is consistent with the ... READ MORE >
RSM US Manufacturing Outlook Index: Four months of improvements at risk
The RSM US Manufacturing Outlook Index continues to improve, with September’s results the fourth month of a developing uptrend. Three of the five regional Federal Reserve surveys reported increased activity during the month, while the Philadelphia and Kansas City regions reported significant ... READ MORE >
The economics of another U.S. government shutdown
The impasse over funding the federal government involves a small group of 20 hardliners in the House of Representative majority who are making demands reminiscent of 2018, when the government shut down for approximately five weeks. The traditional 12 annual appropriations bills that account for ... READ MORE >
Don’t believe the hype: Student loan payments present modest drag on growth
The restarting of student loan repayments will not cause a large drag on overall spending or economic growth in the final quarter of the year. Despite the hype and scare tactics around a well-telegraphed restart date, we estimate that it will result in only a 0.3 percentage point drag on gross ... READ MORE >
FOMC policy decision: No rate hike as Fed implies soft landing
The Federal Reserve maintained its policy rate in a range between 5.25% and 5.5% on Wednesday while revisions to its Summary of Economic Projections strongly imply that the central bank no longer expects a recession, which it did just six months ago, and is increasingly confident of a soft landing in the ... READ MORE >
R-star: The role of the natural rate of interest in monetary policy and economic growth
The pandemic has spurred profound changes in the global economy like a tight labor market and elevated inflation that policymakers are only beginning to understand. But one result is clear: The days of historically low interest rates are over. Now, policymakers are wrestling with the question of ... READ MORE >
Why the Fed should lift its 2% inflation target
We think that the Federal Reserve’s current cycle of rate hikes has peaked at a range between 5.25% and 5.5%. While inflation stands well above the Fed’s official 2% target, we think that because of the economic and political shocks since the pandemic, the Fed will raise its inflation target in the ... READ MORE >