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Market Recap – September 18, 2023

Keel Point

September 18, 2023

The big news last week was hotter inflation from energy/gasoline price increases and stronger than expected consumer spending.  This takes on more importance for the Fed’s FOMC meetings this Tuesday and Wednesday.

  • While the Fed likely will not raise interest rates at its meeting this week, it will release their updated, September Summary of Economic Projections (“SEP”) revealing their views on economic growth, employment, inflation and interest rates for the rest of this year and next. Most likely the SEP will show steady, 2% GDP growth in 2023, declining inflation and no additional 2023 interest rate increases.
  • Despite the recent upturn in energy prices triggering higher CPI headline inflation in August, three-month core CPI inflation is 2.4%, and households revised down their expectations for inflation over the next year to 3.1%, from 3.5%, the lowest level since March 2021 (BLS & U of Mich).
  • Inflation has been reduced primarily by higher supplies of goods and services, according to a newly released study (Mike Konczal, Roosevelt Institute, September 8, 2023) which reports “The majority of disinflation has been driven by expanding supply – 73% of all core goods in the PCE and 66% of services — rather than decreasing demand” and that “A combination of resolving supply shocks and a subtle decrease in demand has driven inflation down dramatically, with no cost to the level of employment.”

The impact of the UAW strike and a possible shutdown create uncertainty and disruptions but is not a material drag on economic performance.

  • If the UAW strike expands from the initial 13,000 members at three plants to include all 150,000 union members, the disruptions to production, unemployment and auto price increases will become more serious, with the economic damage dependent on how long the strike lasts. For context, a recent economic study projects that a 10-day strike of the Big Three automakers would cause economic losses of $5.6 billion in the U.S. economy which generates $515 billion in weekly GDP.
  • A Federal government shutdown seems increasingly likely with Congress at loggerheads over spending and distracted by campaign and other related activities. If a shut-down occurs because no spending bills have been enacted, roughly 500,000 Federal employees will be furloughed, and non-essential services will be suspended.  While disruptive and unhelpful to financial markets, a shut-down doesn’t have a material impact on GDP.

 

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC.  Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory Services offered by Keel Point, LLC an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

 

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