Fed Keeps Foot On Rate-Hike Pedal

Happy Thursday! On this day in 1791, the fledgling United States of America ratified its Bill of Rights, conferring on its citizens a host of fundamental freedoms that can only be infringed upon if doing so helps one’s political team win culture war fights.

Quick Hits: Today’s Top Stories

• Members of the Federal Reserve’s Open Market Committee voted Wednesday to approve a 50-basis-point interest rate, raising the central bank’s target federal funds rate to a range between 4.25 percent and 4.5 percent—the highest level in 15 years. The Fed officials opted against a fifth consecutive 75-basis-point hike with multiple economic indicators pointing to slowing inflation, but Fed Chairman Jerome Powell told reporters in a post-announcement press conference the central bank doesn’t plan to ease up as quickly as markets assumed. “The inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases,” he said. “But it will take substantially more evidence to give confidence that inflation is on a sustained downward path.” Stocks fell on the news.
• United Nations member states voted 29-8 on Wednesday—with at least 16 countries abstaining—to oust Iran from the body’s Commission on the Status of Women for “the remainder of its 2022-2026 term,” citing Tehran’s crackdown on protests over the death of 22-year-old Mahsa Amini in police custody that have rocked the country since September. Iran’s U.N. ambassador decried the move—which was proposed by the United States—as “illegal,” arguing it could set a “dangerous precedent” with “far-reaching consequences.”
• The Senate on Wednesday passed legislation by unanimous consent that—if advanced in the House and signed into law by President Joe Biden—would prohibit the Chinese-owned social media platform TikTok from being downloaded on most government-owned phones or electronic devices, citing privacy and data security concerns. A similar measure has previously passed the Senate only to stall out in the House, but a number of states—including Iowa, Alabama, Maryland, Oklahoma, South Dakota, Texas, and Utah—have implemented bans of their own in recent weeks.
• With COVID-19 infections skyrocketing throughout China as the country’s stringent “zero COVID” restrictions are lifted, Pfizer reportedly reached a deal with a Chinese healthcare platform to sell Paxlovid—the company’s COVID-19 antiviral treatment—in the retail market for the first time. China, which has continued to refuse the West’s mRNA vaccines, approved Paxlovid for use earlier this year—but only through hospital systems and for high-risk patients.

Inflation Data Still Good-Not-Great

Federal Reserve Chairman Jerome Powell’s even-keeled demeanor behind a press conference podium Wednesday belied the high stakes game of chicken the central bank is playing these days—one that threatens to drive us into an economic ditch next year to avoid the still-looming threat of persistent inflation.

“Inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases,” Powell told gathered reporters. “But it will take substantially more evidence to give confidence that inflation is on a sustained downward path.”

The Consumer Price Index (CPI) isn’t the Fed’s preferred inflation measure—that honor goes to the Personal Consumption Expenditures (PCE) index—but this week’s CPI reading came in much better than expected. Prices climbed 7.1 percent year-over-year in November, down from a 7.7 percent annual rate in October and marking the measure’s fifth consecutive month of decline since it peaked in June at 9.1 percent. Month-over-month, inflation rose 0.1 percent—just 1.2 percent annualized—down from 0.4 percent month-over-month growth in October. And core inflation, calculated by stripping out the CPI’s more volatile food and energy categories, delivered its lowest increase since August 2021.

You probably haven’t noticed this slowdown in your weekly trips to the grocery store; food prices increased 0.5 percent in November and are up nearly 12 percent year-over-year. But as the pressure on supply chains continues to abate, we’re starting to see some signs of outright deflation, particularly in goods that have seen price spikes in previous months: Used cars cost 3.3 percent less in November than a year earlier. Costs for services led the index’s growth, but some also posted monthly declines. Transportation services costs leapt 14.2 percent year-over-year, but dropped 0.1 percent from October. Energy prices recorded a brutal 13.1 percent year-over-year growth in November, but fell 1.6 percent from October to November, with gas prices dropping 2 percent. Shelter costs, meanwhile, jumped 7.1 percent year-over-year and 0.6 percent from October. But the six-month rolling average used to calculate that number may be out of date—contemporary housing market data from firms like Redfin and Zillow suggests falling rent prices and home sales.

But even if those trends continue, it’ll be a while still before the situation has stabilized. And considering what central bankers see as a stubbornly hot jobs market, it’s not guaranteed those positive services inflation trends will continue. Despite a growing number of headlines about layoffs at prominent companies, U.S. employers added a better-than-expected 263,000 jobs in November, and unemployment remained at a low 3.7 percent while wages grew 5.1 percent. Companies forced to pay a higher price for labor will pass those costs on to consumers, which could keep inflation sticky. “It’s not that we don’t want wage increases,” Powell clarified. “We want strong wage increases. We just want them to be at a level that’s consistent with 2 percent inflation.” 

In addition to those concerns about a wage-price spiral, Powell encouraged his audience to be wary of additional price shocks in the offing, including the economic ripple effects from soaring COVID-19 infections in China as it relaxes restrictions.

All together, this stew of positive and negative news helps explain the Fed’s mixed announcement on Wednesday. Based on rosy inflation readings the last two months, investors expected the Fed would announce a 50-basis-point hike on Wednesday and signal it was just about done with its cycle of tightening. They were right about the first part, as the central bank forwent what would have been a fifth-consecutive jump of 75 basis points and opted for something slightly smaller. 

But Fed officials made clear in updated economic projections released alongside their announcement that they expect inflation to linger longer than they thought it would a few months ago, requiring a more hawkish approach. Per Fed officials’ estimates, PCE inflation will remain slightly elevated at the end of next year at just over 3 percent, and interest rates will continue rising in 2023, reaching as high as 5.5 percent. “We made less progress than expected on inflation,” Powell said. “I can’t tell you confidently that we won’t move up our estimate of the peak rate again.” He also dismissed the idea of rate cuts next year.

In contrast with the conventional wisdom, some analysts think the Fed is too focused on painful annual inflation numbers when it should be taking the month-to-month improvement as a signal that price increases are already on the way out—and easing up before it drives the economy off the road. “The Fed was probably a year too late to start raising rates, but since then, they have probably overtightened,” Brendan Walsh of Markets Policy Partners told The Dispatch. “[Hockey player] Wayne Gretzky, when asked why he was so good, said, ‘I don’t skate to where the puck is, I skate to where the puck is going.’ The Fed is not even skating to where the puck is—the Fed is skating to where the puck was two months ago.”

But Powell’s message may have been pitched to discourage markets and get traders to quit pricing in rate cuts for next year. Major stock market indexes did drop nearly 1 percent following yesterday’s Fed news. “Financial conditions fluctuate in the short term in response to many factors,” Powell said, acknowledging that the stock market doesn’t rise and fall on his word alone. “But it is important that over time they reflect the policy restraint we are putting in place to return inflation to 2 percent.” 

Still, Walsh predicts, the Fed’s promise to keep the rate hikes coming until 2024 won’t matter if the economy plunges into recession in 2023. The central bank itself on Wednesday projected a tepid 0.5 percent gross domestic product increase in 2023—down from its September projection of 1.2 percent—and revised its previous unemployment estimate for next year from 4.4 to 4.6 percent. “[The central bank is] playing this Kabuki game,” Walsh said. “We know that they’re going to cut rates once unemployment goes up and inflation massively comes down, because it would be gross negligence if they didn’t.”

Worth Your Time

• After being diagnosed with a terminal, debilitating illness at the age of 29, it’d be understandable—expected, even—to wallow in self-pity and anger for a while. But that’s not who Sarah Langs is. “The many intricacies of baseball, the way things can be new and old at the same time, fascinate her endlessly, and her enthusiasm for the game is infectious,” Zach Buchanan reports for The Athletic of the MLB statistician and commentator who recently announced she had been diagnosed with ALS. “It can be found most often on Twitter, where she tweets interesting baseball nuggets to her 74,000 followers with unbounded excitement and innumerable exclamation points. It can also be found on the airwaves, a medium she is now conquering, with regular appearances on MLB Network, SNY and ESPN’s Baseball Tonight podcast.” Her life has changed dramatically in recent months—especially after she announced her diagnosis publicly a few weeks ago—but she’s hoping to use her platform to spread awareness about both the disease and what she’s learned living with it. “We should be telling people who aren’t dying how much we appreciate them,” she says to Buchanan. “I don’t know how we make that a thing, but that’s really been the takeaway. I appreciate every single word, every single punctuation mark from every single person, but I look at people who I work with who are healthy and fine, and they’re just as appreciated, but no one’s telling them. I would love for us to have a way to tell those people that. That’s my next project.”
• In his latest essay for The Gospel Coalition, Patrick Miller warns Christians about the dangers of audience capture—changing yourself to keep up with the shifting demands or beliefs of your followers, readers, or viewers. “In a period of months, [one relatively unknown pastor’s] followers transformed him from winsome to one of the fastest-growing antiwinsome personalities on the social internet. The transformation was complete. The persona devoured the person,” Miller writes. “If you asked him, ‘Why did you change so dramatically?’ I doubt he would say, ‘I do anything it takes for more followers!’ Instead, he’d probably say, ‘I’m just trying to help people.’ He probably sees his transformation as an act of honesty, and authenticity, not a bald grab for attention. The truth, of course, is more complex: virtuous desires intermingle with less salubrious aims, and anyone growing an audience will keep virtue in their conscious foreground, relegating desires for celebrity to the subconscious. It’s the sort of thing that’s easy to see from the outside, but (apart from self-reflection and accountability) almost impossible to see from the inside.”
• On the final episode of “The Argument” podcast, Jane Coaston hosts former Rep. Justin Amash for a conversation about her decision to leave the Libertarian Party and register as an independent. “This sounds to me kind of like what happened with some swath of the Republican Party,” Coaston says of a recent heel turn among Libertarian Party leadership. “You kind of get this contrarian, online poisoning where being really loud on the internet and getting retweeted a bunch, you see that as winning. But I want to zoom out for a second, because over the last four years this podcast has been airing, we have had so many conversations just like this one, but largely about the Republican Party. And you talked about how you saw in the House Freedom Caucus that this was something that was started to stand against encroaching state power, executive power. And then the second everyone got an executive they liked, everybody started going hooray for state power. And that this is, to me, something that’s happening in the Libertarian Party. Is this just a pattern in our politics? Can we never have good things?”

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Toeing the Company Line

• In this week’s Capitolism (🔒), Scott laments the Biden administration’s decision to double down on some of its predecessor’s worst trade policies. “It’s not hyperbole to say that Biden’s latest trade moves might pull the plug on the multilateral trading system as we know it,” he writes. “Maybe abandoning it makes for good politics in the Rust Belt, but at what cost?”
• Ron DeSantis is still Nick’s guy heading into 2024, but he’s got some bones to pick with Florida’s governor over his recent posturing against the COVID-19 vaccines. “I’m capable of holding several ideas in my head simultaneously that are in tension with each other,” he writes in Wednesday’s Boiling Frogs (🔒). “Trump is a fascist psycho who can never be trusted with power again; DeSantis is a reprobate for seeding doubt about the COVID vaccines to advance his presidential ambitions; Trump is better on the vaccines than DeSantis is; DeSantis is nonetheless preferable as Republican nominee; and, most importantly, all of this can and should be acknowledged.”
• On today’s episode of Advisory Opinions, David and Sarah provide updates on the Loudoun County scandals and President Biden’s student loan forgiveness plan before turning to a difficult topic: Section 230 and social media’s liability (or lack thereof) in the spread of child pornography.
• On the site today, Price explains the charges facing former FTX CEO Sam Bankman-Fried and looks at what might come next for the fallen crypto tycoon. 

Let Us Know

After reading Patrick Miller’s piece, can you think of a time you were ever affected by the “audience capture” phenomenon he describes? If so, how did you break out of it?