Highlights
“elevated interest rates have taken a heavy toll on capital markets and slowed the housing industry’s seemingly unstoppable momentum”
Summary
In the 3rd quarter of 2022, inflation continued to be the focal point of the U.S. economic picture. The Federal Reserve’s hawkish interest rate hikes and quantitative tightening plans have thus far underperformed expectations to temper blazing inflation. Further, volatile energy costs are no longer at the forefront of price increases; while inflation among all items fades slightly, “core” inflation, which sets aside traditionally volatile categories, is accelerating. Meanwhile, elevated interest rates have taken a heavy toll on capital markets and slowed the housing industry’s seemingly unstoppable momentum.
The Federal Reserve has repeatedly declared their intent to continue aggressive counter-inflationary policies, particularly interest rate raises, despite the constraints such policies are placing on the U.S. economy. In the view of the Fed, the need to contain inflation exceeds the need to keep the economy from the grips of recession.
Concerns of recession abated slightly with the first positive real GDP reading of 2022; however, the major factor behind the boosted production numbers, a narrowing trade deficit, is expected to be short-lived. The labor market continued to be a bright spot in the 3rd quarter of 2022, with the unemployment rate finally reaching its pre-pandemic level and the labor force participation rate continuing to slowly recover as well.
Recorded COVID-19 cases waned throughout the 3rd quarter of 2022. With widely available at-home tests and relaxed testing policies in public and private spaces across the U.S., official COVID case rates likely no longer give an accurate picture of the virus’s reach.