Directory
- 2020
- June
- July
- September
- November
- December
- 2021
- January
- Thoughts on GME and This Week in the Stock Market
- Record Home Price Levels Point to Strength in Post-Pandemic Economy
- The Stock Market Looks Overvalued, but It's Probably Not
- China GDP Growth Surpasses Expectations
- President-elect Joe Biden Introduces His "American Rescue Plan"
- Political Polarization Intensifies with Another Impeachment Along Party Lines
- Metal Demand Has a Bright Future in 2021 and Beyond
- What Happened to That US-China Trade Dispute?
- Civil Unrest, A Rising Threat to the 2021 Economy
- What's in the $900 Billion Relief Plan?
- February
- Long Term Employment Shifts Caused by the Pandemic
- Earnings Provide Positive Surprise Despite Pandemic
- Renewable Energy Under Fire in Texas
- Yellen Aims for Full Employment
- Minimum Wage Research in the Spotlight as a Hike Looks Inevitable
- Non-Residential Construction Soft in the Pandemic Economy
- March
- Views on Interest Rates and the Move in Treasury Yields
- Inflation Indicators Healthy but Still on the Rise
- Risky Assets Sell-off Despite Optimistic Economic Outlook
- The Latest on Vaccinations and What it Means for Growth
- April
- May
- Highlights of the Fed's "Economic Well-Being of U.S. Households in 2020" Report
- Relative Factors and Forward Change in Federal Funds Rate
- Can Wage Growth Keep Up With Inflation?
- June
- July
- August
- With That, We Carry On
- Supply Pressures Looking to Peak
- Cars are Still Expensive, Workers are Still Needed
- Recovery Continues, but Delta Looms
- September
- Fed Eyes Tapering While China Sees a Setback
- Review the Fed Previews
- No Tapering Yet
- Labor Day on Labor Day
- October
- Delayed or Disappearing Growth?
- Supply and Demand Mismatch will be Evident during the Holiday Shopping Season
- Workers Find Leverage in a Tight Labor Market
- Cautiously Optimistic
- Sour Expectations Take Down the Market
- November
- Q3 Earnings Were Surprisingly Good
- Inflation Weights on Bonds and Consumer Sentiment
- FOMC Tapers While Trade and Employment Flash Mixed Signals
- December
- 2022
- January
- Inflation is Getting Broader, Not Cooler
- Unemployment Insurance During the Pandemic
- A Year of Normalization
- What Will GDP Growth Look Like in 2022?
- February
- March
- April
- May
- June
- August
- Student Loans Targeted by the Biden Administration
- The Chicago Fed Index Reverses in July
- Chinese Economic Data Faltered in July
- Stellar Jobs Report Bucks Recession Fears
- September
- Bank of Japan Punished for Dovish Policy Stance
- Expect 75 Today
- Manufacturing Weakness in Germany has Implications for Euro Area Growth
- October
- 2023
- February
- April
- Q1 GDP Growth Jumps 1.1% on Strong Personal Consumption
- A Strong March Leads to a Surge in Chinese GDP in Q1 2023
- Durable Goods Retail Sales Suffer from High Interest Rates and Wary Consumers
- Choppy GDP Means UK Should Avoid Q1 Recession
- Japanese Consumer Confidence Jumps to Highest Level in Over a Year
- May
FOMC Tapers While Trade and Employment Flash Mixed Signals
Jacob Hess
November 07, 2021
- Weekly Commentary
- Monetary Policy
The Week Behind
That's that. Tapering has begun. As many expected, the FOMC announced the beginning of the end of its asset purchase program on Wednesday to cap the November meeting in which FOMC members determined that the economy had made "substantial further progress" towards the Fed's goals. The long awaited announcement served as a signal that the economy has recovered enough to be taken off of life support. To support the Fed's decision, a strong jobs report pointed to another drop in the unemployment rate, down -0.2% to 4.6% in October.
On inflation, Chair Powell and company are still appearing to take a pass. The biggest shift in the FOMC statement text was an adjustment to the wording of the sentence that summarized the committee's inflation expectations. The September press release described the forces that are creating elevated inflation as "transitory factors." In the October release, it seemed that the FOMC backed off the transitory narrative for a moment by noting that elevated inflation is reflecting "factors that are expected to be transitory." The shift in phrasing likely reflects the rise in inflation projections seen in the September meeting and another rise in the PCE Price index in September (up 4.4% YoY vs 4.2% YoY in Oct). Whether or not these things will cause the path to rate hikes to shorten, right now, is anyone's guess. There are still a lot of roadblocks to a safe post-pandemic landing. Wells Fargo ended the week with a commentary piece asking the question on everyone's mind "when will the shortages end?"
Powell and fellow FOMC members' hawkishness leans on the strides the labor market is making towards full employment. The addition of 531,000 jobs in October is a strong improvement on September, and a sign the effect of the Delta variant is falling away. This was also evident from an auxiliary question in the survey where only 3.8 million people reported that they had been unable to work because their employer closed or lost business due to the pandemic, down -1.2 million from the previous month. Job gains were, again, dominated by the leisure and hospitality sector, but other sectors kept up with solid job gains. Expect to see further gains in leisure and hospitality with wages up a whopping 11.2% YoY there in preparation for Thanksgiving and Christmas. Consumers will almost certainly be paying for these wage increases with more expensive holiday services.
The September US trade report that came out last week detailed a substantial increase in the US international trade deficit in September. The deficit was driven by a -4.7% decrease in goods exports which was a result of a -9.9% decrease in industrial supply exports, another symptom of the slowdown in US industry. Strong demand supported imports which grew 0.6% on the month boosted by capital goods and industrial supply goods. It seems, at the moment, with the US ahead of most economies on the recovery, foreign trade partners are enjoying a strong US consumer. The deficit will continue to weigh on growth until the rest of the world can catch up and capacity pressures ease.
Chart of the Week

The US trade deficit has reached new highs in recent months as exports fail to keep up with imports. The trade imbalance is likely to ease when supply disruption eases pressure on the cargo shipping.
The Week Ahead
Economic news rolls in relatively quietly next week. The biggest reports will feature updates on US and German inflation as well as an update on job openings. The NFIB survey will also describe the status of small businesses which have been struggling with high input prices and labor shortages.