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Last week we received discouraging news from the U.S. economy.
First, regarding the labor market, the number of job openings in the country fell in July to its lowest level in 28 months, at 8.827 million, down from 9.165 million the previous month, while unemployment rose to 3.8%.
The country’s GDP figures for the second quarter were revised to 2.1%, from 2.4% previously. Surprisingly, however, the markets reacted positively. Why might this be?
In short, investors believe that slowing economic growth will push down consumer demand and, as a result, the inflationary monster will loosen its grip. Thus, investors expect that the Fed no longer needs to raise interest rates.
The only problem is that inflationary risks persist, especially due to high energy prices: on August 15, 2023, the average retail price of gasoline in the country reached $3.86 per gallon, up 7% from a month ago, due to high demand and shrinking inventories.
Natural disasters could also bring the problem of rising prices back to the table. For example, Hurricane Ida, which hit the Florida coast, could worsen the situation due to supply chain disruptions and infrastructure damage.
Citigroup analysts caution that “two Category 3 or higher hurricanes hitting the U.S. coasts could massively disrupt supplies not just for weeks, but for months.” No wonder the DXY dollar index remains above the 104 level, and 10-year Treasury yields near 4.2.
That being said, contrary to the statements made by Bostic from the Federal Reserve Bank of Atlanta, suggesting that the Fed’s policy is sufficiently restrictive, the battle against inflation may continue.
Overall, even if the tightening of monetary policy is halted, there are few reasons to expect robust market growth, given the indications of an economic slowdown suggested by the economic calendar data.
