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One of the things I love about being in the investment arena is that things are always changing, and there is a certain rush in trying to pull the various macroeconomic facets together.
Inflation, Growth, and the Fed
The Fed decided to stand pat, but the macroeconomy may be pushing them hard for a rate hike at the next meeting. The Fed’s preferred inflation measure is the Personal Consumption Expenditures (PCE) Price Index. On a seasonally adjusted basis, the reading increased to 3.6%, up 0.5 percentage points from the last reading. The increase is not out of line with consensus estimates; however, this month’s reading illustrates that inflationary pressures are not abating.
With inflation remaining above the Fed’s 2.0% goal, GDP increased at an annualized rate of 3.4%, ahead of the consensus estimate of 3.1% and well ahead of the 2.2% pace reported in the second quarter.
With inflation remaining above the Fed’s target and the economy still showing strength, the Fed’s ability to hold rates steady appears to be diminished. Initial jobless claims dropped to 194,000, slightly better than the expectation of 198,000. Oil is hovering near $100 as I write this on 10/29 at 9:40 in the morning and is down 2.3% today on renewed hopes for a deal with Iran.
Elections and What Comes Next
We view the elections next week as critical in the sense that if Republicans win, the President’s agenda remains intact. If control of the House and Senate is split, there will be gridlock. If Democrats win both chambers, this could be viewed as a mandate. We think even a Democratic sweep will not produce much in the way of an agenda because the President will likely veto anything put on his desk.
More to come on this. If we do see a deal with Iran, that could lower energy prices and help take the heat out of inflation. The jobs market may be the critical wild card and one we are keeping a close eye on.
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