October may just yet mark the beginning of the end for inflationary pressures here in the U.S.  The Fed’s relentless pursuit of higher interest rates is starting to take hold, as prices across a wide range of industries are softening, albeit at a slow pace.  With the Federal Funds rate now at a 3.00% to 3.25% range, and with the Fed poised to increase by another 75 basis points this week, QT measures are finally taking hold.  We would anticipate economic data going forward to reflect a gradually slowing U.S. economy, although one with a still-strong labor market.

Consumer prices edged higher by +0.4% in September for a +8.2% YoY increase.  Core CPI surged +0.6% on the month for a higher than expected +6.6% YoY increase.  Producer prices remained elevated with PPI registering a +0.4% MoM increase (+8.5% YoY), while Core PPI rose +0.3% MoM and +7.2% YoY.  Lastly, the PCE Deflator rose +0.3% in September (+6.2% YoY), while the Core Deflator grew by +0.5% MoM and +5.1% YoY. 

The Employment picture remained strong in September with the Unemployment Rate coming in at a lower than expected +3.5%, with Nonfarm Payrolls growing by 263k.  Average Hourly Earnings rose +0.3% on the month (+5.0% YoY) while the Labor Force Participation Rate came in slightly lower than expected at 62.3%.  Weekly Initial Jobless Claims remained low in October averaging 219k per week. The JOLTS (US Job Openings By Industry Total) showed over 10mm openings in August while the just released September number came in at a higher than expected +10.7mm.

Purchasing Managers Indices continue to hover around the 50 mark (below 50 representing contraction and above 50 expansion).  The S&P Global US Manufacturing PMI registered 50.4 in October, up from the prior reading of 49.9, while the ISM Manufacturing PMI came in at 50.2.

As we enter November, the Federal Reserve continues to raise interest rates to combat historically high inflation.  Further, the Fed is reducing its balance sheet at an increasing rate, and M2 continues to decline.  More restrictive monetary policy should serve to tame inflation in coming months, all the while sending the US economy dangerously close to recession.  If the US can maintain stable employment into 2023, the odds of a severe recession would be significantly diminished.

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