Economy in Brief: 2022

At today's meeting of the Federal Open Market Committee, the targeted Federal Funds Rate was raised by 50 basis points to 4.25% - 4.50%. The action followed four consecutive 75 basis point increases. Up from a low of 0.125% in March of this year, the rate was set to the highest since early-December 2007.

The Fed's statement following the meeting was little changed from the September meeting.

"Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low."

"Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. The Committee is highly attentive to inflation risks. The Committee is strongly committed to returning inflation to its 2 percent objective."

"The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May."

Today's action was endorsed by each member of the FOMC.

An updated set of economic projections was issued at today's meeting. The Fed lowered GDP growth projections from the September meeting to 0.5% from 1.2% in 2023, and 1.6% from 1.7% in 2024. The 2023 & 2024 unemployment rate estimates were raised for both years to 4.6% from 4.4%. The PCE inflation estimate was raised to 3.1% from 2.8% for 2023 and to 2.5% from 2.3% for 2024, while the 2025 estimate was raised to 2.1% from 2.0%. The core PCE inflation estimate for 2023 was raised to 3.5% from 3.1% and for 2024, it was raised to 2.5% from 2.3%. The core inflation estimate for 2025 was unchanged at 2.1%.

The "appropriate" Federal Funds Rate estimate for 2023 was raised to 5.1% from 4.6% and to 4.1% from 3.9% in 2024.

U.S. import prices fell 0.6% (+2.7% y/y) during November after weakening 0.4% in October. Prices fell 4.6% from July through November, but rose 2.7% y/y. A 0.5% decline had been expected in the Action Economics Forecast Survey. Export prices declined 0.3% in November (6.3% y/y), down for the fifth straight month. A 0.7% decline was expected. None of the import & export prices are seasonally adjusted.

Import prices of foods, feeds & beverages increased 1.8% in November (4.0% y/y) following a 0.9% October decline. Industrial supplies & materials prices fell 2.5% (+3.7% y/y), the fifth consecutive monthly decline. Capital goods prices improved 0.1% last month (3.0% y/y) after increasing 0.2%, while motor vehicle & parts prices held steady (3.0% y/y) after a 0.6% October increase. Nonauto consumer goods import prices fell 0.2% in November (+0.6% y/y), the third straight month of decline.

Petroleum import prices fell 3.3% last month (+11.2% y/y) and are down 24.7% since June. Nonpetroleum import costs eased 0.3% (+1.9% y/y). They have fallen for seven consecutive months, off 2.4% since April.

Amongst export categories, food & beverage export prices rose 2.7% in November (12.2% y/y) after falling for five consecutive months. The cost of industrial supplies & materials declined 1.1% (+7.7% y/y), down for the fifth straight month. Capital goods export prices weakened 0.2% (+3.3% y/y) and followed no change in October prices. Motor vehicle & parts export prices were unchanged last month (4.4% y/y) after easing 0.2% in October. Nonauto consumer goods prices fell 0.3% (+3.0% y/y) and reversed the prior month's increase.

Agricultural product prices strengthened 2.3% in November (12.0% y/y) after falling for four straight months. Nonagricultural product costs declined 0.6% (+5.6% y/y), down in each month since June.

The import and export price series can be found in Haver's USECON database. Detailed figures are available in the USINT database. The expectations figure from the Action Economics Forecast Survey is in the AS1REPNA database.

Consumer price inflation continues to ease. The November Consumer Price Index edged 0.1% higher during November versus expectations for a 0.3% gain. The 7.1% y/y increase is down from a peak 9.1% y/y rise in June. The latest gain followed two months of 0.4% increase. The CPI less food & energy also exhibited weakness as it rose 0.2% versus an expected 0.3% rise. The y/y rise decelerated to 6.0% from a peak 6.6% in September. The gain came after rising 0.3% in October.

A 1.6% decline (+13.1% y/y) in energy prices provided downward pressure on last month’s CPI as it came after a 1.8% October increase. Gasoline prices fell 2.0% (+10.1% y/y) after a 4.0% increase. Fuel oil prices rose 1.7% (65.7% y/y) after strengthening 19.8%. Electricity prices eased 0.2% (+13.7% y/y) after rising 0.1% while natural gas prices fell 3.5% (+15.5% y/y) following a 4.6% October decline.

Amongst other component categories, there were offsetting pressures during November. Goods prices excluding food & energy fell 0.5% (3.7% y/y) after falling 0.4% in October. Used car & truck prices declined 2.9% (-3.3% y/y) after sharp declines in each of the prior two months. New car & truck prices held steady (7.2% y/y) after rising 0.4% in October and apparel prices rose 0.2% (3.6% y/y) following two months of decline.

For consumer services, prices rose 0.4% (6.8% y/y) following a 0.5% increase. Shelter prices rose 0.6% (7.1% y/y) after a 0.8% gain. Rent prices rose 0.8% (7.9% y/y) after a 0.7% gain while owners’ equivalent rent of primary residences rose 0.7% (7.1% y/y) after increasing 0.6% in October. Medical care service costs fell 0.7% (+4.4% y/y) after a 0.6% October decline while recreation services prices rose 1.0% (5.4% y/y) after a 0.8% October rise. Transportation service costs eased 0.1% (+14.2% y/y) as airline fares fell 3.0% (+36.0% y/y) following a 1.1% October decline.

On the food price front, overall costs rose 0.5% (10.6% y/y) after a 0.6% rise in October. Egg prices strengthened 2.3% (49.1% y/y) after surging 10.1% in October while dairy prices improved 1.0% (16.4% y/y) after easing 0.1%. The cost of fresh fruits & vegetables rose 1.4% (9.7% y/y) after a 0.9% October decline. Offsetting these gains, meat, poultry & fish prices fell 0.4% (+4.3% y/y) after easing 0.1% in October. Nonalcoholic beverage prices improved 0.7% (13.2% y/y) after rising 0.5% in October.

The Consumer Price Index data can be found in Haver's USECON database with additional detail in CPIDATA. The Action Economics survey figure is in the AS1REPNA database.