The Economy

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War on inflation has been won

Illustration: Shoshana Gordon/Axios

Inflation has fallen below 3% for the first time since 2021 — a clear sign that it's no longer the economy's biggest problem, Axios Macro co-author Courtenay Brown reports. The recent string of upbeat inflation data is all but certain to allow the Fed to more comfortably shift its attention to the weakening labor market and lower interest rates. 💸 By the numbers: The Consumer Price Index rose 2.9% in the 12 months ending in July. Core CPI, which excludes food and energy prices, rose 3.2% — the smallest increase in three years. And over the last three months, core CPI rose 1.6% on an annualized basis. 🛒 Zoom in: Prices for many key items increased slowly or even fell. Grocery costs have been rising at a mild pace since February, including a 0.1% increase in July. Prices are up just 1% compared to the same time last year. 🏦 What to watch: The question now is how big of a rate cut the Fed will make next month. Analysts are generally expecting a quarter of a percentage point. Go deeper.

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🚘 America's car price cooldown

Data: Kelley Blue Book. Chart: Axios Visuals After years of soaring prices, the cost of a new car is falling, Axios' Nathan Bomey writes from data out this week. New-vehicle prices have declined on a year-over-year basis for 10 straight months, according to Kelley Blue Book. Why it matters: It's not time to celebrate yet. Prices for vehicles and insurance are still eye-popping compared to pre-pandemic days. But pandemic-era supply chain bottlenecks — which led to price spikes — have cleared up. Dealerships are now turning to discounts to keep sales flowing. Incentives such as cash rebates and loan rate reductions — which practically disappeared during the pandemic — are back. 🔢 By the numbers: The price of a new vehicle fell 1% in July, compared to last year, according to CPI data out yesterday. Used car prices continue to slide, as well. Keep reading.

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Economy

 

Former President Donald Trump attacked Vice President Kamala Harris on Wednesday while delivering a speech in North Carolina, arguing that she would ensure the economy would get worse. He suggested that Harris' economic proposal would be a "copy of my plan," pointing to her also backing the elimination of taxes on tips for service workers — a policy proposal he announced back in June. He also accused Harris of not tackling inflation and bringing down prices while serving in the Biden administration. Harris is set to roll out her economic proposals on Friday, where she will call for a federal ban on price gouging to lower grocery prices and everyday costs for Americans.

[bonnie1962]

Wonder if the author of articles like this does the family grocery shopping or paid electrical or gas bill. Not to fear tho another big chunk of taxpayers money may well be on the way for first time home buyers. Read this morning that she wants 25,000 to first time home buyers to purchase home

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📈 Wall Street rallies

Data: Yahoo Finance. Chart: Axios Visuals Less than two weeks ago, recession fears helped trigger a global stock market selloff. Yesterday, Wall Street rallied to one of its best days of the year after data showed the economy is holding up better than expected. 🧮 By the numbers: The S&P 500 is back to within 2.2% of its all-time high set last month. Go deeper.

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The on-again, off-again recession

Illustration: Shoshana Gordon/Axios

Economists have been on a roller coaster in recent years: A recession looks likely … a recession looks unlikely … the recession is back on … the recession is back off … the recession is imminent ... the recession is far off. Why it matters: As of this moment, the recession is off again. But the constant cycle of conflicting data and changing predictions has made it hard to trust that any forecast will stick, Axios' Courtenay Brown and Sam Baker write. ↕️ Conflicting economic data is fueling these sharp swings in sentiment. 👎 The bad news: Consumers are falling further behind on credit card payments, and the unemployment rate rose to 4.3% in July — which tripped a reliable indicator that suggested high risk of a recession. 👍 The good news: Consumer spending surged in July, inflation looks like it's over (really this time), and an early forecast from the Atlanta Fed shows the economy likely grew at a solid 2% rate in the third quarter. 🧠 Reality check: Bumpy, conflicting economic data can signal a turning point in the economy. That looks to be exactly what's underway now. Go deeper.

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Powell may use Jackson Hole speech to hint at how fast and how far the Fed could cut rates

WASHINGTON (AP) — Federal Reserve officials have said they’re increasingly confident that they’ve nearly tamed inflation. Now, it’s the health of the job market that’s starting to draw their concern.

https://apnews.com/article/interest-rates-prices-inflation-federal-reserve-economy-7e581f4da9c0c228c997ea8eb361e7ca?

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Sizable savings

Most Americans know very little about the Inflation Reduction Act, but it has saved them millions of dollars on home upgrades such as solar panels, new appliances and insulation. People in California, Texas and Florida are reaping the biggest benefits.

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Fed chair Jerome Powell: ‘Time has come’ to cut interest rates

JACKSON HOLE, Wyoming  — With inflation nearly defeated and the job market cooling, the Federal Reserve is prepared to start cutting its key interest rate from its current 23-year high, Chair Jerome Powell said Friday.

https://www.orlandosentinel.com/2024/08/23/powell-at-jackson-hole-the-time-has-come-for-the-fed-to-soon-begin-reducing-interest-rates-2/?

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Get ready for rate cuts

Photo illustration: Sarah Grillo/Axios. Photo: Win McNamee/Getty Images JACKSON HOLE, Wyo. — The Fed is poised to cut interest rates, in part to prevent any further job market cooling, Axios' Neil Irwin and Courtenay Brown report. In a much-anticipated speech in the Grand Tetons, Fed Chair Jay Powell said the central bank's fight to reduce inflation has largely succeeded — and he's now focused on the risks of a faltering job market. "The time has come for policy to adjust," Powell said. "[W]e do not seek or welcome further cooling in labor market conditions." 🍂 What's next: Powell's speech sets up a rate cut in mid-September, in the thick of the presidential race. Go deeper.   How to prepare for the Fed’s forthcoming interest rate cuts NEW YORK (AP) — The Federal Reserve is poised to cut its benchmark interest rate next month from its 23-year high, with consequences for consumers when it comes to debt, savings, auto loans and mortgages. Right now, most experts envision three quarter-point Fed cuts — in September, November and December — though even steeper rate cuts are possible. https://apnews.com/article/fed-rate-cut-consumers-debt-loans-savings-51960beab765fcdadd61282671b075c6?

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Why the White House has a "vibe-rarian"

By Courtenay Brown

Illustration: Aïda Amer/Axios

A central economic fact of the Biden years has been that Americans' attitudes about the economy have been highly negative despite economic data that has been good, and sometimes great. The big picture: Economists are increasingly taking public opinion seriously, relying on a skill not often taught in the halls of academia where they earned their PhDs: empathy. That means understanding the sense of misery facing sticker-shocked consumers as an important input, even if the data show the rate of inflation has declined precipitously from 2022 highs. The intrigue: This disconnect has posed a communications challenge for White House economists. Officials couldn't brag about inflation's plunge from record levels without acknowledging that average Americans feel pinched by high prices. Along with the usual reams of economic data, Council of Economic Advisors chair Jared Bernstein consults a Gen Z staffer, dubbed in-house as the "vibe-rarian." This staffer, Molly Opinsky, at times updates Bernstein on the economic vibes observed on social media platforms. One example: Groceries started showing up in TikTok videos of shopping "hauls" — when influencers post videos about their purchases — along with complaints about the high prices. What they're saying: The feeling among Biden's top economists is that such posts aren't the definitive economic narrative, but shouldn't be totally discounted. "People are the best arbiters of how they're feeling about the economy," Bernstein tells Axios. Keep reading

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💰 Record number of 401(k) millionaires

Data: Fidelity; Chart: Axios Visuals The number of Americans with at least $1 million in their retirement accounts hit a record high during the last quarter, according to new data from Fidelity. The rising stock market drove a 2.5% increase in "401(k)-created millionaires" at Fidelity and a 6% jump in the number of people with a $1 million balance in an IRA. 💭 Our thought bubble: Tax breaks for retirement savings disproportionately benefit the wealthy, Axios' Felix Salmon writes. Accumulating $1 million in a 401(k) is only an option for people who work somewhere that offers one, probably with a generous match, and who can afford to save the legal maximum every year.

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Job security

In this uncertain labor market, a surprising trend is paying off — and you don’t need a bachelor’s degree. The earning potential for people with a vocational or associate degree has been consistently strong, and enrollment is on the rise.

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Economy

 

Wall Street kicked off September with a bust after a disappointing economic report dragged down the Dow by more than 600 points Tuesday. The report on manufacturing showed a fifth-straight month of declines, fueling concern that aggressive rate hikes from the Federal Reserve have inflicted too much damage on the economy. September has historically been an ugly month for stocks, but Tuesday's decline came after a similarly miserable start to August when markets went into a tailspin. Meanwhile, Vice President Kamala Harris is set to announce a second wave of economic proposals today, including benefits to entrepreneurs and small business owners. Small businesses are currently granted a $5,000 deduction for expenses related to their first year of operation, but Harris will propose raising that to $50,000, an official said.

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Sluggish US jobs report clears the way for Federal Reserve to cut interest rates

WASHINGTON (AP) — Hiring by America’s employers picked up a bit in August from July’s tepid pace, and the unemployment rate dipped for the first time since March in a sign that the job market may be cooling but remains sturdy.

https://apnews.com/article/jobs-hiring-federal-reserve-inflation-unemployment-economy-bac1b453d3873d5f23f2061344d28fd9?

The job market lost momentum this summer, and rate cuts are imminent

The great American job creation machine began creaking more slowly this summer, and a response from the Federal Reserve is near — though the scale of that response remains in question.

https://www.axios.com/2024/09/06/us-job-market-fed-rate-cuts?

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💰 America finally gets a raise

Data: Census Bureau. Chart: Axios Visuals At long last, middle-income American households saw rising inflation-adjusted incomes last year, Axios' Neil Irwin writes from new census data. Why it matters: It's the first gain in four years. The median household earned $80,610 in 2023, the U.S. Census Bureau said — up 4% from 2022 after adjusting for inflation. After-tax median income rose by 3.7%. Keep reading ...

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Annual US consumer inflation fell to 2.5% in August, a 3-year low

WASHINGTON (AP) — The post-pandemic spike in U.S. inflation eased further last month as year-over-year price increases reached a three-year low, clearing the way for the Federal Reserve to cut interest rates and likely shaping the economic debate in the final weeks of the presidential race.

https://apnews.com/article/inflation-prices-interest-rates-economy-federal-reserve-bb1f4cfeede550c6c82fd78e2ea537a5?

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💸 Men's pay rises faster than women's

Data: U.S. Census Bureau; Chart: Axios Visuals Men's median earnings rose twice as much as women's last year — the first time in 20 years that the gender pay gap has widened significantly. The median woman working full time in 2023 earned 83% of what the median man earned, Axios' Emily Peck reports. 💼 Between the lines: The wage gap doesn't mean women earn less than men for the same types of jobs — though that does happen. Instead, it is a useful indicator of broad inequality between men and women in the labor market. More women than men hold low-wage jobs, and women are also more likely to take time out of the labor force to care for children. Go deeper.

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🇺🇸 Charted: America's advantage

Data: UN. Chart: Axios Visuals One of America's key competitive advantages — especially over Europe — lies in its demographics, Axios' Courtenay Brown writes. Why it matters: The U.S. labor force is expected to keep growing for the rest of the century — in stark contrast to Europe, where it's already shrinking (even after accounting for immigration). America faces plenty of economic challenges. But compared to its allies across the Atlantic Ocean, things look pretty good. Go deeper with Axios Markets.

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🇺🇸 Reasons to love the U.S. economy

Illustration: Aïda Amer/Axios

A list of Europe's economic shortcomings is a reminder of the strength that underpins the U.S. economy, Axios Macro author Courtenay Brown writes. Why it matters: In a new 300+-page report on European competitiveness, Mario Draghi, formerly Europe's top central banker as well as Italy's prime minister, uses the U.S. economy as the main example of what European nations should emulate as they seek to jumpstart growth. Takeaways from Draghi's report for the European Commission: 1. Innovation: Roughly a third of startups founded in Europe since 2008 that went on to be unicorns — those valued at $1 billion or more — left the bloc, with the majority coming to the U.S. The report says the U.S. is home to 22 of the 50 companies with the world's biggest research and development budgets. Europe has 12. Over 70% of AI models built since 2017 are from the U.S. 15% stem from China. 2. Dynamism: All six of the most valuable companies in the U.S. — all of which are worth more than $1 trillion — have been created in the last 50 years. No European company valued at more than $100 billion has been started in that period. 3. Trade: America has tilted toward protectionism and embraced tariffs. That has scrambled longstanding global trade dynamics — and Europe hasn't adjusted. Keep reading.

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💵 End of an economic era

Photo illustration: Aïda Amer/Axios. Photo: Drew Angerer/Getty Images

At precisely 2 p.m. Wednesday, in a windowless ground-floor room in Washington's Foggy Bottom, dozens of packed-in economics journalists will hit "send" on reports that the Fed has decided to cut interest rates. With that, an economic era will end, Axios Macro co-author Neil Irwin writes. Why it matters: The defining economic feature of the last four years has been the onset of the highest inflation in modern times, followed by the Fed's efforts — late, but aggressive — to bring it to an end. That chapter in America's economic history ends this week. The question of what comes next is less clear. The U.S. job market has shown mounting signs of weakness in recent months, including a rise in the jobless rate from a modern low of 3.4% last year to 4.2% in August. Beyond this week's tactical decision by the central bank, it looks like the era of very low mortgage and other rates that prevailed in the 2010s isn't coming back. Fed officials, as of June, anticipated that their target interest rate would be 2.8% in the longer run. That's higher than it was at any time from 2009 through 2021. 🔭 Zoom out: This has been an economic cycle unlike any modern memory, as the unique dynamics of a post-pandemic economy — global supply disruptions, labor shortages, massive fiscal support for the economy — broke the usual rules of thumb for how the economy works. Go deeper with Axios Macro.

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💰 Charted: Stubborn high prices

Data: Bureau of Labor Statistics. Table: Axios Visuals The era of rapid inflation may be over, but that doesn't mean 2019 prices will return, Axios' Neil Irwin writes. The victory in taming inflation only means that prices are no longer rising rapidly, as they did in 2021 and 2022. It doesn't mean that prices are returning to their pre-pandemic levels. 💡 How it works: The Fed and other central banks seek 2% annual inflation — which means that if they achieve their goal, prices will continue going up by about 0.17% each month, over and above the price surge of the recent past. There are good reasons for that. Periods of broadly falling prices, known as deflation, tend only to happen in painful downturns — most famously the Great Depression.

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📉 Exclusive: CEOs see hiring chill

Data: Business Roundtable. Chart: Axios Visuals Backward-looking economic data shows America's job market is slowing. Plans at some of the nation's biggest corporations show the slowdown might continue, according to survey results shared first with Axios Macro authors Courtenay Brown and Neil Irwin. Why it matters: Once the labor market starts cooling, it typically continues to do so. The central question for the economy is whether this time will be different. The latest hint comes from a new Business Roundtable survey of 145 top business leaders that points to muted economic confidence. The lobbying group's index that tracks CEO confidence fell four points in the third quarter and dipped below the historical average for the first time this year. Among the factors that pulled the index down: A smaller share of executives are planning to increase headcount. Joshua Bolten, CEO of the Business Roundtable, said it's "the second consecutive quarter in which CEOs have reported they are moderating their hiring plans." Still, fewer than 30% of executives plan to decrease hiring — not too much lower than the historical average. The bottom line: CEO expectations don't point to a recession. But they confirm the concerns about the labor market that are pushing the Fed to cut interest rates this afternoon.

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The Federal Reserve is finally lowering rates. Here’s what consumers should know

NEW YORK (AP) — The Federal Reserve has cut its benchmark interest rate from its 23-year high, with consequences for debt, savings, auto loans, mortgages and other forms of borrowing by consumers and businesses.

https://apnews.com/article/federal-reserve-interest-rates-loans-consumers-borrowing-6127436dd3e6d8af48825aca6d3a7715?

What the Fed’s rate cut could mean for you

NEW YORK (AP) — The Federal Reserve has cut its benchmark interest rate from its 23-year high, with consequences for debt, savings, auto loans, mortgages and other forms of borrowing by consumers and businesses.

https://apnews.com/article/federal-reserve-interest-rates-loans-consumers-borrowing-6127436dd3e6d8af48825aca6d3a7715?

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🏦 Fed goes big

Illustration: Maura Losch/Axios

The Fed handed down a bigger-than-expected rate cut today because it's trying to get ahead of potential softening in the labor market, Axios Macro authors Neil Irwin and Courtenay Brown report. The Fed cut rates by half a percentage point, rather than a quarter — a sign that the battle against inflation has been won and the job market is now the predominant economic risk. 🔮 What we're watching: The immediate effects for consumers may be somewhat muted. Prices for everyday goods won't go down — they just won't keep going up as steeply as they had been. Mortgage rates are hovering around 6%, and analysts don't expect them to fall any further this year. But interest rates on credit cards and car loans will likely come down.