The latest reading of the Atlanta Fed’s “GDPnow” forecasting model shows the economy expanding moderately in the current quarter.
That estimate can swing wildly as data evolves. Last week, it dropped to an annualized 0.5% from 1.3%. That’s due, in part, to a soft reading of the retail sales “control group” that feeds into GDP calculations. Other economists trimmed expectations for growth: Bank of America, for instance, nudged its Q3 GDP tracker down by 0.3 percentage points to 0.8%.
So combine that with the Fed’s move to increase interest rates again this week – and released new forecasts that show the central bank envisions higher unemployment and yet higher rates in the coming months in its campaign to bring down inflation.
Further quoting Axios, the signal of more rate increases ahead paired with pessimistic projections for the labor market is a clear signal of the Fed’s commitment to putting a lid on soaring prices — even if the broader economy takes a hit as a result.
In new forecasts, the median Fed official envisioned the unemployment rate rising to 4.4% late next year and staying there through 2024, a projected increase that Powell characterized as “relatively modest” by historical standards. They previously envisioned the jobless rate peaking at 3.9%.
Why do we care?
Two reasons. First, we care about the labor market, considering how hard it is to find tech employees. I’m not sure unemployment here will help – we’ll watch for analysis there. That said, it’s customers too who are impacted.
Second, if the cost of money goes up, anything around financing could be impacted. It’s budget time, so customers may be thinking a lot about spending for 2023. The cost of money will not be as low as it’s been. And that’s why we care.