An economic downturn is still possible. Yet in recent weeks, with inflation showing widespread signs of easing, a more cheerful view has gained traction: Maybe a recession isn’t inevitable after all.
America’s employers added a solid 223,000 jobs in December, but average hourly pay growth eased in December to its slowest pace in 16 months.
Overall, the minutes showed that Federal Reserve officials remained determined to keep rates high to quell inflation and have taken little comfort from inflation’s decline from a peak of 9.1% in June to 7.1% in November.
Friday’s report from the Commerce Department showed that prices rose 5.5% in November from a year earlier, down from a revised 6.1% increase in October and the smallest gain since October 2021.
The rise in gross domestic product—the economy’s output in goods and services—marked a return to growth after consecutive drops in the January-March and April-June periods.
This year, supply chain snags have eased and shoppers aren’t as worried about availability as they are about higher prices on everything from rent to food, causing them to postpone their buying until the last minute.
Megadeals announced early in the year were soon replaced by jitters about getting mergers and acquisitions over the finish line, with monthly deal activity plummeting by almost half from May to June. The volumes have yet to recover.
An AARP report released last month showed more than a third of people 65 and older described their financial situation at midyear as worse than it was 12 months before.
Americans cut back on retail spending last month as the holiday shopping season began, with high prices and rising interest rates forcing families to make harder decisions about what they buy.
Consistent with a sharp slowdown, Fed officials projected that the economy will barely grow next year, expanding just 0.5%, less than half the forecast it had made in September.
The six rate hikes the Fed has already imposed this year have raised its key short-term rate to a range of 3.75% to 4%, its highest level in 15 years.
The report, the last of 2022, points to inflation that—while much too high—is beginning to ease.
In a recent speech, Federal Reserve Chair Jerome Powell pointed to the shortfall of workers and the resulting rise in average pay as the primary remaining driver of the price spikes that continue to grip the economy.
The latest year-over-year figure was down from 8% in October and from a recent peak of 11.7% in March.
The report also showed that consumers spent more in October, even after adjusting for inflation, a sign of their continued willingness to keep spending in the face of high prices.
The Federal Reserve will push rates higher than previously expected and keep them there for an extended period, Chair Jerome Powell said Wednesday, in remarks likely intended to underscore the Fed’s single-minded focus on combating stubborn inflation.
The Federal Reserve is closely monitoring the figures on job openings and quits for signals about the strength of the job market.
Chair Jerome H. Powell is expected to this week cement expectations that the Federal Reserve will slow its pace of interest-rate increases next month, while reminding Americans that its fight against inflation will run into 2023.
Under the Inflation Reduction Act, signed into law by President Biden on Aug. 16, some consumers may qualify for more than $10,000 in rebates and tax credits for buying high-efficiency appliances and electric vehicles and other purchases to decrease their carbon footprints.
Corporate profits have withstood raging inflation over much of the last year, but those good times might be ending.
