Member Briefing September 22, 2022

Posted By: Harold King Daily Briefing,

Fed Raises Interest Rates by 0.75 Percentage Point for Third Straight Meeting

 The Federal Reserve approved its third consecutive interest-rate rise of 0.75 percentage point and signaled additional large increases were likely at coming meetings as it combats inflation that remains near a 40-year high. The unanimously supported decision by the Fed’s 12-member rate-setting committee—will lift its benchmark federal-funds rate to a range between 3% and 3.25%, a level last seen in early 2008.

Officials’ new projections showed a majority of 19 officials who participated at the Fed’s policy meeting expect to lift the rate at least by another 1.25 percentage point by December, to a range between 4.25% and 4.5%. The Fed has two more meetings this year. Officials’ projections show greater uncertainty over what might happen to rates after that. Around one third of officials expect rates to stay above 4% through 2024, and another third see the Fed cutting rates to between 2.5% and 3.5% in 2024. The remaining third have rates declining to somewhere in between.

Read more at the WSJ

War in Ukraine Headlines

High Natural-Gas Prices Push European Manufacturers to Shift to the U.S.

Battered by skyrocketing gas prices, companies in Europe that make steel, fertilizer and other feedstocks of economic activity are shifting operations to the U.S., attracted by more stable energy prices and muscular government support.  As wild swings in energy prices and persistent supply-chain troubles threaten Europe with what some economists warn could be a new era of deindustrialization, Washington has unveiled a raft of incentives for manufacturing and green energy. The upshot is a playing field increasingly tilted in the U.S.’s favor, executives say, particularly for companies placing bets on projects to make chemicals, batteries and other energy-intensive products.

While the U.S. economy is facing record inflation, supply-chain bottlenecks and fears of a slowdown, analysts say, it has emerged relatively strong from the pandemic as China continues to enforce Covid lockdowns and Europe is destabilized by war. New spending by Washington on infrastructure, microchips and green-energy projects has heightened the U.S.’s business appeal.

Read more at the WSJ

 U.S. Rents Surge, Leaving Behind Generation of Younger workers

The cost of renting a home in the United States is surging and young workers have felt the sharpest pain, many of them taking on additional jobs or roommates to afford housing costs. Household rents in 2021 jumped 10% from pre-pandemic levels, according to Census Bureau estimates released last week. The figures came as rising healthcare and rental costs pushed U.S. consumer prices up unexpectedly last month.

The data from the bureau’s annual American Community Survey put median U.S. rent at $1,037 in 2021, up from $941 in 2019. Year-over-year increases in the median household rent over the past decade were typically 2% or 3% - one exception was the 5% rise from 2018 to 2019. Among those affected most are recent college graduates and other new entrants to the workforce, who have little in savings and cannot afford to buy a house.

Read more at Reuters

US COVID - Just in Time for Fall, There’s a Brand new COVID Variant Making Headway in the U.S.

A new COVID strain started to create waves among virus trackers this week, outpacing nearly all other variants of interest scientists are tracking in the U.S. this autumn. The variant, which scientists have named BF.7—short for BA.—comprised 1.7% of sequenced infections last week in the U.S., according to new data from the U.S. Centers for Disease Control and Prevention. Other variants jockeying for the top spot right now—held by BA.5, at 85%—include BA.4.6, which comprised 10.3% of infections, and BA.2.75, which comprised 1.3%.

Scientists For months have been watching BA.2.75—dubbed “Centaurus” by the Twitterverse—as a variant of interest with potential to surge this fall. But this week, BF.7 surpassed it. “The same growth advantage in multiple countries makes it reasonable to think that BF.7 is gaining a foothold,” and that it’s potentially more transmissible than parent BA.5, Ray said. Children of variants “don’t grow relative to their parent unless they have an advantage.”

 Read more at Fortune

Supreme Court to Consider New York's Vaccine Mandate

The U.S. Supreme Court will hear an NYPD detective’s challenge to New York City’s vaccine requirement for municipal workers after all. Last month, liberal Justice Sonia Sotomayor rejected a request by Det. Anthony Marciano to take up his legal challenge — the outcome of which could have significant implications for Mayor Eric Adams’ administration. But Marciano resubmitted the exact same request to conservative Justice Clarence Thomas, and the high court’s press office confirmed Tuesday the case will be deliberated at a conference Oct. 7.

Marciano sued the city last year challenging a policy requiring municipal workers be inoculated against Covid-19. He did not qualify for religious or medical exemptions, but instead argued he’d acquired immunity through his front-line service and should be free to make his own decision about getting the jab.

Read more at Politico

Wall Street CEOs Uncertain Fed Can Achieve Soft Landing

The heads of the largest U.S. banks expressed concerns about the state of the U.S. economy as they began two days of questioning Wednesday from Congress. Bank chief executives, including JPMorgan Chase & Co.’s Jamie Dimon and Citigroup Inc.’s Jane Fraser offered a favorable picture of an industry they say helped the economy recover from a pandemic-induced recession while warning of risks on the horizon.

Mr. Dimon said competing forces are affecting the economy. They include strong consumer spending and plentiful job openings amid high inflation, disrupted supply chains, the war in Ukraine and declining consumer confidence. But he said it is difficult to accurately predict whether the Federal Reserve will succeed in achieving a soft landing, in which inflation moderates with only a mild decline in economic activity. Ms. Fraser said higher rates are likely to moderate growth in the U.S. and other countries. “We are very concerned about the high prices that consumers are facing in America and indeed around the world,” she said.

Read more at USA Today

Legal Challenges to Student Loan Forgiveness Loom Before Midterms

GOP state attorneys general, conservative groups and federal lawmakers are laying the groundwork to challenge President Biden’s executive action to cancel up to $20,000 of debt for most of the 40 million people with federal student loan debt. Would-be plaintiffs can’t take action until the administration makes a formal move toward cancellation, such as releasing an application for loan forgiveness or wiping out the balances of a first batch of borrowers.  The Education Department has said it would unveil an application for borrowers to register their income and Pell Grant status, two factors that determine relief eligibility, by early October.

At that point, the department could move ahead with canceling the debt of nearly eight million borrowers whose relevant income data is already available to the department. Republican legal challenges are expected to start then, and legal experts say it is possible that the administration’s plan could be frozen by a federal judge within days. That could throw the financial future of tens of millions of potential voters into uncertainty just weeks before Election Day on Nov. 8. and provide a real-world test of student debt’s potency as a political issue.

Read more at the WSJ

Euro Zone Faces Deeper Recession on Gas Cuts, Deutsche Bank Says

The euro area is facing a deeper recession than previously forecast after Russia halted natural gas deliveries through the Nord Stream 1 pipeline, according to Deutsche Bank economists. Output will shrink 2.2% next year, compared with an earlier projection for a 0.3% contraction, the analysts said Wednesday in a report to clients. Gross domestic product in Germany, which is most exposed to lower energy shipments, will. Drop as much as 4%

Inflation, meanwhile is seen as averaging 6.2% in 2023 down from 8.2.% in 2022 as supply chain disruptions, labor shortage and energy shortages continue to impact the economy. Bank economists predict a ECB deposit rate of 2.5%.  A Euro area recession now seems inevitable to economists.

Read more at Bloomberg

China’s Rulers Seem Resigned to a Slowing Economy

Thanks to its deep property slump and the government’s “zero-covid” policy, which entails lockdowns in response to every outbreak of the virus, the economy is now forecast to grow by less than 3% in 2022, according to banks such as Nomura, Morgan Stanley and ubs. That is far below the official target of 5.5%. China’s currency is also weakening. On September 16th it took more than seven yuan to buy a dollar for the first time since July 2020. A gap has opened up between the GDP path envisaged for China at the start of this year and the grimmer one that now seems probable. China’s gdp in 2023 could be more than $2trn below the level forecast in January, reckons Goldman Sachs, another bank.

It is not like China to settle for such underperformance. Even after the global financial crisis in 2008, China’s GDP quickly caught up to where it would have been had the crisis never happened. Impressed by this result, Yi Wen of the Federal Reserve Bank of St Louis and Jing Wu of Tsinghua University wrote another “like China” paper, entitled “Withstanding the Great Recession like China”.

Read more at the Economist

Europe’s Energy System Has Become a ‘Market that Doesn’t Function,’ Spanish Prime Minister Says

The invasion of Ukraine, and Russian President Vladimir Putin’s willingness to cut off natural gas supply to Europe, has sparked a crisis on the continent, with soaring utility bills, rationed electricity, and public unrest.  But while Putin may have provoked the crisis, it has also revealed cracks in Europe’s energy system—including an overreliance on Russia for energy imports—and European leaders are warning that big changes will be required if the continent is to move on from its current predicament.

The European energy system has now become a “market that doesn’t function,” Spanish Prime Minister Pedro Sánchez told Politico this week during the United Nations General Assembly in New York City. Sánchez insisted that Europe should keep focusing on two things to combat the energy crisis: continuing its commitment to transitioning towards renewable energy, and adopting more centralized and bloc-wide approaches to containing energy prices.

Read more at Fortune

US Home Sales Dip for Seventh Straight Month

Existing home sales dipped 0.4 percent from July to August amid high mortgage rates, according to the National Association of Realtors (NAR), making it the seventh consecutive month of declining sales. Sales are occurring at the slowest pace since June 2020, with year-over-year sales dropping by 19.9 percent.

The average 30-year mortgage rate was 5.22 percent in August, down slightly from July but far higher than last year’s average rate of less than 3 percent, according to Freddie Mac. The median home price dipped for the second straight month from the record high in June, but prices are still up 7.7 percent from the same period last year, according to the NAR.

Read more at The Hill

Employers Prepare for Significant Jump in Healthcare Costs

On the heels of other surveys that anticipate large jumps in employer-sponsored coverage, new data from consulting firm Willis Towers Watson finds that U.S. employers project their healthcare costs will jump 6% next year, compared with an average 5% increase they are experiencing this year. Most employers see little relief in sight, as seven in 10 (71%) expect moderate to significant increases over the next three years, according to the survey of 455 U.S. employers. Additionally, more than half of respondents (54%) expect their costs will be over budget this year.

The WTW survey isn’t alone in predicting significant increases in healthcare costs. Another report out last week from HR and benefits consulting firm Buck finds that healthcare costs for employers are increasing between 5.8% to 6.9%.

Read More at HRExecutive

Nominations for the 2023 Women MAKE Awards Closing Soon

The deadline to nominate your female colleagues and employees for the 2023 Women MAKE Awards is fast approaching. Don’t miss the chance to recognize women who are having an impact on your company and the future of our industry. The process is straightforward: Complete four short essays outlining your nominee’s achievements and commitment to paying it forward. Get started today.

There are two categories you may consider:

  • Honoree: Nominee is currently employed in manufacturing at any level of the company, from the factory floor to the C-suite.
    • 100 Honorees are selected each year.
  • Emerging Leader: Rising female talent currently employed in the manufacturing industry that have made significant contributions and excelled early in their career. An Emerging Leader nominee must be between 18 and 30 years of age as of December 31, 2022.
    • 30 Emerging Leaders are selected each year.

Read more at the Manufacturing Institute

Climate Week Opens in New York as World Leaders Gather for U.N. General Assembly

In New York, the 77th United Nations General Assembly opened Monday with the climate emergency and the war in Ukraine taking center stage. Ahead of the gathering, Secretary-General António Guterres called out nations for failing to protect future generations, decrying the “sheer inadequacy of the global response to the climate crisis.” Today is also the start of Climate Week here in New York, with dozens of protests and climate-related activities scheduled around the city.

Read more at the AP

United Nations Planes Parked at Stewart

Dozens of jets belonging to heads of state around the world are parked at New York Stewart International Airport near Newburgh. The aircrafts are brought to Stewart after dropping off the UN representatives in New York; in some cases, the officials are driven down to the UN after landing at Stewart.

The nations that park their planes during the General Assembly enjoy the lack of congestion at Stewart and the less expensive landing and parking fees.

Read more at Mid-Hudson News