The St. Louis Fed’s Financial Stress Index (STLFSI3) is one index that is supposed to measure stress in the financial system. Its reading as of the October 6, 2022 update (reflecting data through September 30, 2022) is -1.2385:

source: Federal Reserve Bank of St. Louis, St. Louis Fed Financial Stress Index [STLFSI3], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed October 6, 2022: https://fred.stlouisfed.org/series/STLFSI3

Of course, there are a variety of other measures and indices that are supposed to measure financial stress and other related issues, both from the Federal Reserve as well as from private sources.

Two other indices that I regularly monitor include the Chicago Fed National Financial Conditions Index (NFCI) as well as the Chicago Fed Adjusted National Financial Conditions Index (ANFCI).

Here are summary descriptions of each, as seen in FRED:

The National Financial Conditions Index (NFCI) measures risk, liquidity and leverage in money markets and debt and equity markets as well as in the traditional and “shadow” banking systems. Positive values of the NFCI indicate financial conditions that are tighter than average, while negative values indicate financial conditions that are looser than average.

The adjusted NFCI (ANFCI). This index isolates a component of financial conditions uncorrelated with economic conditions to provide an update on how financial conditions compare with current economic conditions.

For further information, please visit the Federal Reserve Bank of Chicago’s web site:

http://www.chicagofed.org/webpages/publications/nfci/index.cfm

Below are the most recently updated charts of the NFCI and ANFCI, respectively.

The NFCI chart below was last updated on October 5, 2022 incorporating data from January 8, 1971 through September 30, 2022 on a weekly basis.  The September 30 value is -.006267:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed October 6, 2022:  
http://research.stlouisfed.org/fred2/series/NFCI

–

The ANFCI chart below was last updated on October 5, 2022 incorporating data from January 8, 1971 through September 30, 2022, on a weekly basis.  The September 30, 2022 value is .07763:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed October 6, 2022:  
http://research.stlouisfed.org/fred2/series/ANFCI

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3751.63 as this post is written

For reference purposes, below are two charts of the VIX from year 2000 through the October 4, 2022 close, which had a closing value of 29.07.

Here is the VIX Weekly chart, depicted on a LOG scale, with the 13- and 34-week moving averages, seen in the cyan and red lines, respectively:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

–

Here is the VIX Monthly chart, depicted on a LOG scale, with the 13- and 34-month moving average, seen in the cyan and red lines, respectively:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3790.93 as this post is written

In the March 9, 2012 post (“Charts of Equities’ Performance Since March 9, 2009 And January 1, 1980“) I highlighted two charts for reference purposes.

Below are those two charts, updated through the latest daily closing price.

The first is a daily chart of the S&P500 (shown in green), as well as five prominent (AAPL, IBM, AMZN, SBUX, CAT) individual stocks, since 2005.  There is a blue vertical line that is very close to the March 6, 2009 low.  As one can see, both the S&P500 performance, as well as many stocks including the five shown, have performed strongly since the March 6, 2009 low:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

–

This next chart shows, on a monthly LOG basis, the S&P500 since 1980.  I find this chart notable as it provides an interesting long-term perspective on the S&P500′s performance.  The 20, 50, and 200-month moving averages are shown in blue, red, and green lines, respectively:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3678.43 as this post is written

StockCharts.com maintains long-term historical charts of various major stock market indices, interest rates, currencies, commodities, and economic indicators.

As a long-term reference, below are charts depicting various stock market indices for the dates shown.  All charts are depicted on a monthly basis using a LOG scale.

(click on charts to enlarge images)(charts courtesy of StockCharts.com)

The Dow Jones Industrial Average, from 1900 – September 30, 2022:

–

The Dow Jones Transportation Average, from 1900 – September 30, 2022:

–

The S&P500, from 1925 – September 30, 2022:

–

The Nasdaq Composite, from 1978 – September 30, 2022:

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3650.33 as this post is written

U.S. Dollar weakness is a foremost concern of mine.  As such, I have extensively written about it, including commentary on the “A Substantial U.S. Dollar Decline And Consequences” page.  I am very concerned that the actions being taken to “improve” our economic situation will dramatically weaken the Dollar.  Should the Dollar substantially decline from here, as I expect, the negative consequences will far outweigh any benefits.  The negative impact of a substantial Dollar decline can’t, in my opinion, be overstated.

The following three charts illustrate various technical analysis aspects of the U.S. Dollar, as depicted by the U.S. Dollar Index.

First, a look at the monthly U.S. Dollar from 1983.  This clearly shows a long-term weakness, with the blue line showing technical support until 2007, and the red line representing a (past) trendline:

(charts courtesy of StockCharts.com; annotations by the author)

(click on charts to enlarge images)

–

Next, another chart, this one focused on the daily U.S. Dollar since 2000 on a LOG scale.  The red line represents a (past) trendline.  The gray dotted line is the 200-day M.A. (moving average):

–

Lastly, a chart of the Dollar on a weekly LOG scale.  There are two clearly marked past channels, with possible technical support depicted by the dashed light blue line:

–

I will continue providing updates on this U.S. Dollar situation regularly as it deserves very close monitoring…

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3640.78 as this post is written

Various surveys, economic growth projections, and market risk indicators portrayed a short period (through mid-2020) of substantial U.S. economic decline, and now indicate sustained economic growth and financial stability for the foreseeable future.

However, there are various indications – many of which have been discussed on this site – that this very widely-held consensus is in many ways incorrect.  There are many exceedingly problematical financial conditions that have existed prior to 2020, and continue to exist.  As well, numerous economic dynamics continue to be exceedingly worrisome and many economic indicators have portrayed facets of weak growth or outright decline currently as well as prior to 2020.

Of paramount importance is the resulting level of risk and the future economic implications.

From an “all things considered” standpoint, I continue to believe the overall level of risk remains at a fantastic level – one that is far greater than that experienced at any time in the history of the United States.

Cumulatively, these highly problematical conditions will lead to future upheaval.  The extent of the resolution of these problematical conditions will determine the ongoing viability of the financial system and economy as well as the resultant quality of living.

As I have previously written in “The U.S. Economic Situation” updates:

My analyses continues to indicate that the growing level of financial danger will lead to the next stock market crash that will also involve (as seen in 2008) various other markets as well.  Key attributes of this next crash is its outsized magnitude (when viewed from an ultra-long term historical perspective) and the resulting economic impact.  This next financial crash is of tremendous concern, as my analyses indicate it will lead to a Super Depression – i.e. an economy characterized by deeply embedded, highly complex, and difficult-to-solve problems.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3621.95 as this post is written

For reference, below is a chart of the St. Louis Fed Price Pressures Measures – Deflation Probability [FRED STLPPMDEF] through September 2022.

While I do not necessarily agree with the current readings of the measure, I view this as a proxy of U.S. deflation probability.

A description of this measure, as seen in FRED:

This series measures the probability that the personal consumption expenditures price index (PCEPI) inflation rate (12-month changes) over the next 12 months will fall below zero.

The chart, on a monthly basis from January 1990 – September 2022, with a last reading of .00001, last updated on September 30, 2022:

Here is this same U.S. deflation probability measure since 2008:

source:  Federal Reserve Bank of St. Louis, Deflation Probability [STLPPMDEF], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed October 1, 2022: https://fred.stlouisfed.org/series/STLPPMDEF

_________

I post various economic indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3585.62 as this post is written

Advisor Perspectives had a post of September 30, 2022 (“Michigan Consumer Sentiment Mostly Unchanged in September“) that displays the latest Conference Board Consumer Confidence and University of Michigan Consumer Sentiment Index charts.  They are presented below:

(click on charts to enlarge images)

–

While I don’t believe that confidence surveys should be overemphasized, I find these readings and trends to be notable, especially in light of a variety of other highly disconcerting measures highlighted throughout this site.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3617.52 as this post is written

On September 29, 2022, the Zillow Q3 2022 Home Price Expectations Survey results were released.  This survey is done on a quarterly basis.

An excerpt from the press release:

Although the panel-wide 2022 expected home price appreciation rate ticked up to 9.8% from 9.3% in this most recent survey, all 107 survey respondents project home price deceleration in 2023. The share of panelists who believe their long-term outlook might be too optimistic jumped up to 67% from 56% last quarter.

“U.S. home price appreciation is clearly easing up in response to the historic surge in mortgage rates,” said Terry Loebs, founder of Pulsenomics. “Our expert panel’s mean projections indicate that residential rent price growth is expected to outpace headline CPI inflation over the coming three years and exceed home price growth through at least 2025. Despite softening house prices, this implies that affordability hurdles for prospective first-time homeowners will remain high and persist for years to come.”    

–

Various Q3 2022 Zillow Home Price Expectations Survey charts are available, including that seen below:

As one can see from the above chart, the average expectation is that the residential real estate market, as depicted by the U.S. Zillow Home Value Index, will continually climb.

The detail of the Q3 2022 Home Price Expectations Survey is interesting.  Of the 107 survey respondents, only five (of the displayed responses) forecasts a cumulative price decrease through 2026.

The Median Cumulative Home Price Appreciation for years 2022-2026 is seen as 9.50%, 13.30%, 16.50%, 19.02%, and 23.37%, respectively.

For a variety of reasons, I continue to believe that these forecasts will prove far too optimistic in hindsight.

I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While many people continue to have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Residential real estate is an exceedingly large asset bubble. As such, from these price levels there exists potential for a price decline of outsized magnitude. 

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3640.47 as this post is written

On September 28, 2022 The CFO Survey (formerly called the “Duke/CFO Global Business Outlook”) was released.  It contains a variety of statistics regarding how CFOs view business and economic conditions.

In this CFO Survey press release, I found the following to be the most notable excerpts – although I don’t necessarily agree with them:

Financial decision-makers lowered their expectations for real growth in gross domestic product during the third quarter amid concerns over inflation and trouble finding skilled labor, according to the results of The CFO Survey, a collaboration of Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta.

At the same time, CFOs said their optimism about the overall economy rose modestly from its recent low. Optimism about their own firms, though well below levels from a year ago, remained steady alongside some improvement in expectations for revenue, employment and cost growth.

CFOs said inflation was the most pressing concern facing their firms. Firms revised unit cost growth during 2022 down to 8.9 percent from 10.2 percent in the prior survey. These costs remain at elevated levels, and nearly all firms reported experiencing larger-than-normal cost increases.

As seen in the report’s detail:

CFOs on average expect real GDP to grow 0.9 percent over the next 12 months, down from an expectation of 1.5 percent last quarter. Across CFOs, the average probability of negative GDP growth over the next 12 months was 30 percent, compared to a 21 percent probability last quarter.

This CFO Survey contains an Optimism Index chart, with the blue line showing U.S. Optimism (with regard to the economy) at 53.1, as seen below:

—

It should be interesting to see how well the CFOs predict business and economic conditions going forward.   I discussed past various aspects of this, and the importance of these predictions, in the July 9, 2010 post titled “The Business Environment”.

(past posts on CEO and CFO surveys can be found under the “CFO and CEO Confidence” label)

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3698.43 as this post is written 

For reference purposes, below are two sets of charts depicting growth in the money supply.

The first shows the M1, defined in FRED as the following:

Before May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other checkable deposits (OCDs), consisting of negotiable order of withdrawal, or NOW, and automatic transfer service, or ATS, accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions.

Beginning May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other liquid deposits, consisting of OCDs and savings deposits (including money market deposit accounts). Seasonally adjusted M1 is constructed by summing currency, demand deposits, and OCDs (before May 2020) or other liquid deposits (beginning May 2020), each seasonally adjusted separately.

Here is the “M1 Money Stock” (seasonally adjusted) chart, updated on September 27, 2022 depicting data through August 2022, with a value of $20,452.9 Billion:

Here is the “M1 Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of 3.6%:

Data Source: Board of Governors of the Federal Reserve System (US), M1 Money Stock [M1SL], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed September 27, 2022: https://fred.stlouisfed.org/series/M1SL

The second set shows M2, defined in FRED as the following:

Before May 2020, M2 consists of M1 plus (1) savings deposits (including money market deposit accounts); (2) small-denomination time deposits (time deposits in amounts of less than $100,000) less individual retirement account (IRA) and Keogh balances at depository institutions; and (3) balances in retail money market funds (MMFs) less IRA and Keogh balances at MMFs.

Beginning May 2020, M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1.

Here is the “M2 Money Stock” (seasonally adjusted) chart, updated on September 27, 2022, depicting data through August 2022, with a value of $21,711.4 Billion:

Here is the “M2 Money Stock” chart on a “Percent Change From Year Ago” basis, with a current value of 4.1%:

Data Source: Board of Governors of the Federal Reserve System (US), M2 Money Stock [M2SL], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed September 27, 2022: https://fred.stlouisfed.org/series/M2SL

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3647.29 as this post is written

Many people place emphasis on Durable Goods New Orders as a prominent economic indicator and/or leading economic indicator.

For reference, below are two charts depicting this measure.

First, from the St. Louis Fed site (FRED), a chart through August 2022, updated on September 27, 2022. This value is $272,659 ($ Millions):

(click on charts to enlarge images)

–

Second, here is the chart depicting this measure on a “Percent Change from a Year Ago” basis, with a last value of 8.8%:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Manufacturers’ New Orders:  Durable Goods [DGORDER]; U.S. Department of Commerce: Census Bureau; accessed September 27, 2022; 
http://research.stlouisfed.org/fred2/series/DGORDER

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3655.04 as this post is written

The following is an update of various indicators that are supposed to predict and/or depict economic activity. These indicators have been discussed in previous blog posts:

The September 2022 Chicago Fed National Activity Index (CFNAI) updated as of September 26, 2022:

The CFNAI, with a current reading of 0.0:

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed September 26, 2022: 
https://fred.stlouisfed.org/series/CFNAI

The CFNAI-MA3, with a current reading of .01:

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index: Three Month Moving Average [CFNAIMA3], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed September 26, 2022: 
https://fred.stlouisfed.org/series/CFNAIMA3

–

The ECRI WLI (Weekly Leading Index):

As of September 23, 2022 (incorporating data through September 16, 2022) the WLI was at 145.3 and the WLI, Gr. was at -10.6%.

A chart of the WLI,Gr., from the Advisor Perspectives’ ECRI update post of September 23, 2022:

–

The Aruoba-Diebold-Scotti Business Conditions (ADS) Index

The ADS Index as of September 22, 2022, reflecting data from March 1, 1960 through September 17, 2022, with last value .0145106:

–

The Conference Board Leading Economic Index (LEI), Coincident Economic Index (CEI), and Lagging Economic Index (LAG):

As per the September 22, 2022 Conference Board press release the LEI was 116.2 in August, the CEI was 108.7 in August, and the LAG was 115.4 in August.

An excerpt from the release:

“The US LEI declined for a sixth consecutive month potentially signaling a recession,” Ataman Ozyildirim, Senior Director, Economics, at The Conference Board. “Among the index’s components, only initial unemployment claims and the yield spread contributed positively over the last six months—and the contribution of the yield spread has narrowed recently.”

“Furthermore, labor market strength is expected to continue moderating in the months ahead. Indeed, the average workweek in manufacturing contracted in four of the last six months—a notable sign, as firms reduce hours before reducing their workforce. Economic activity will continue slowing more broadly throughout the US economy and is likely to contract. A major driver of this slowdown has been the Federal Reserve’s rapid tightening of monetary policy to counter inflationary pressures. The Conference Board projects a recession in the coming quarters.”

Here is a chart of the LEI from the Advisor Perspectives’ Conference Board Leading Economic Index (LEI) update of September 22, 2022:

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3711.38 as this post is written

The Chicago Fed National Activity Index (CFNAI) and the Aruoba-Diebold-Scotti Business Conditions Index (ADS Index) are two broad-based economic indicators that I regularly feature in this site.

The short-term and long-term trends of each continue to be notable.

The Advisor Perspectives’ post of September 23, 2022, titled “The Philly Fed ADS Index Business Conditions Index Update” displays both the CFNAI MA-3 (CFNAI on a 3-month Moving Average) and ADS Index (91-Day Moving Average) from a variety of perspectives.

Of particular note, two of the charts, shown below, denote where the current levels of each reading is relative to the beginning of recessionary periods, as depicted by the red dots.

The CFNAI MA-3:

(click on charts to enlarge images)

–

The ADS Index, 91-Day MA:

–

Also shown in the aforementioned post is a chart of each with a long-term trendline (linear regression) as well as a chart depicting GDP for comparison purposes.

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3673.10 as this post is written

In the August 9, 2011 post (“QE3 – Various Thoughts“) I posted a chart that depicted the movements of the S&P500, 10-Year Treasury Yield and the Fed Funds rate spanning the periods of various Federal Reserve interventions since 2007.

For reference purposes, here is an updated chart (September 22, 2022) from the Advisor Perspectives’ site post of September 22, 2022 (“Treasury Snapshot…):

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3670.48 as this post is written

 As I stated in my July 12, 2010 post (“ECRI WLI Growth History“):

For a variety of reasons, I am not as enamored with ECRI’s WLI and WLI Growth measures as many are.

However, I do think the measures are important and deserve close monitoring and scrutiny.

Below are three long-term charts, from Advisor Perspectives’ ECRI update post of September 23, 2022 titled “ECRI Weekly Leading Index Update.”  These charts are on a weekly basis as of the September 23, 2022 release, reflecting data through September 16, 2022.

Here is the ECRI WLI (defined at ECRI’s glossary):

–

This next chart depicts, on a long-term basis, the Year-over-Year change in the 4-week moving average of the WLI:

–

This last chart depicts, on a long-term basis, the WLI, Gr.:

_________

I post various economic indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3675.07 as this post is written

Perhaps the main reason that I write of our economic situation is that I continue to believe, based upon various analyses, that our economic situation is in many ways misunderstood.  While no one likes to contemplate a future rife with economic adversity, current and future economic problems must be properly recognized and rectified if high-quality, sustainable long-term economic vitality is to be realized.

For long-term reference purposes, here is a chart of the Dow Jones Industrial Average since 1900, depicted on a monthly basis using a LOG scale (updated through September 21, 2022, with a last value of 30,183.78):

(click on chart to enlarge image)(chart courtesy of StockCharts.com)

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3693.73 as this post is written

On Wednesday, September 21, 2022 FOMC Chairman Jerome Powell gave his scheduled September 2022 FOMC Press Conference. (link of video and related materials)

Below are Jerome Powell’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Powell’s Press Conference“ (preliminary)(pdf) of September 21, 2022, with the accompanying “FOMC Statement” and “Summary of Economic Projections” dated September 21, 2022.

Excerpts from Chairman Powell’s opening comments:

Today, the FOMC raised its policy interest rate by 3/4 percentage point, and we  anticipate that ongoing increases will be appropriate. We are moving our policy stance  purposefully to a level that will be sufficiently restrictive to return inflation to 2 percent. In  addition, we are continuing the process of significantly reducing the size of our balance sheet. I will have more to say about today’s monetary policy actions after briefly reviewing economic  developments. 

The U.S. economy has slowed from the historically high growth rates of 2021, which  reflected the reopening of the economy following the pandemic recession. Recent indicators  point to modest growth of spending and production. Growth in consumer spending has slowed  from last year’s rapid pace, in part reflecting lower real disposable income and tighter financial  conditions. Activity in the housing sector has weakened significantly, in large part reflecting  higher mortgage rates. Higher interest rates and slower output growth also appear to be  weighing on business fixed investment, while weaker economic growth abroad is restraining  exports. As shown in our Summary of Economic Projections, since June FOMC participants  have marked down their projections for economic activity, with the median projection for real GDP growth standing at just 0.2 percent this year and 1.2 percent next year, well below the  median estimate of the longer-run normal growth rate. 

also:

Despite elevated inflation, longer-term inflation expectations appear to remain well  anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as  well as measures from financial markets. But that is not grounds for complacency; the longer the  current bout of high inflation continues, the greater the chance that expectations of higher  inflation will become entrenched.

also:

At today’s meeting the Committee raised the target range for the federal funds rate by  3/4 percentage point, bringing the target range to 3 to 3-1/4 percent. And we are continuing the  process of significantly reducing the size of our balance sheet, which plays an important role in  firming the stance of monetary policy.

Over coming months, we will be looking for compelling evidence that inflation is moving  down, consistent with inflation returning to 2 percent. We anticipate that ongoing increases in the target range for the federal funds rate will be appropriate; the pace of those increases will  continue to depend on the incoming data and the evolving outlook for the economy. With today’s action, we have raised interest rates by 3 percentage points this year. At some point, as the stance of monetary policy tightens further, it will become appropriate to slow the pace of increases, while we assess how our cumulative policy adjustments are affecting the economy and inflation. We will continue to make our decisions meeting by meeting and communicate our  thinking as clearly as possible.

Excerpts of Jerome Powell’s responses as indicated to various questions:

STEVE LIESMAN.  Thank you, Mr. Chairman, Steve Liesman, CNBC. Can you talk about how you factor in the variable lags on inflation and the extent to which the outlook for rates should be seen as linear in the sense that you keep raising rates. Well, can you envision a time when there’s a pause to kind of look at what has been wrought in the economy from the rate increases? Thank you. 

CHAIR POWELL.  Sure, so of course monetary policy does famously work with long and variable lags. The way I think of it is our policy decisions affect financial conditions immediately, in fact, financial conditions have usually been affected well before we actually announce our decisions. Then changes in financial conditions begin to affect economic activity fairly quickly, within a few months. But it’s likely to take some time to see the full effects of changing financial conditions on inflation. So, we are very much mindful for that. And that’s why I noted in my opening remarks that at some point, as the stance of policy tightens further, it will become appropriate to slow the pace of rate hikes while we assess how our cumulative policy adjustments are affecting the economy and inflation. So that’s how we think about that. Your second question, sorry, was?

STEVE LIESMAN.  Is there a point in time you could see pausing? Is it linear when you keep raising rates, or is there, oh sorry– I should know better than to not talk with a microphone.

CHAIR POWELL.  I should know better than to answer your second question. 

STEVE LIESMAN. Well there you go. Is it linear? Do you keep raising rates or is there a pause that you could envision where you kind of figure out what has happened to the economy and give time to catch up in the real economy, the rate increase time to catch up with the real economy? Thank you. 

CHAIR POWELL.  So I think it’s very hard to say with a precise certainty the way this is going to unfold. As I mentioned, what we think we need to do and should do is to move our policy rate to a restrictive level that’s restrictive enough to bring inflation down to 2 percent, where we have confidence of that. And what you see in the SEP numbers is people’s views as of today, as of this meeting, as to the kind of levels that will be appropriate. Now those will evolve over time and I think we’ll just have to see how that goes. There is a possibility certainly that we would go to a certain level that we’re confident in and stay there for a time. But we’re not at that level, clearly today we’re just, we’ve just moved I think probably into the very lowest level of what might be restrictive and certainly in my view and the view of the Committee, there’s a ways to go. 

also:

CRAIG TORRES. Craig Torres from Bloomberg. Chair Powell, you talked about some ways the higher interest rates are affecting the economy, but we’ve also seen a resilient labor market with durable consumption, strong corporate profits, and I’m wondering what your story is on the resilience of the economy, after all, you and your colleagues said well, we started tightening in March when we were talking about interest rates in the future, and indeed, treasury rates moved up, so we should have had a lot of tightening taking affect. Why is the economy, in your view, so resilient and does it mean that we might need a possibly higher terminal rate. 

CHAIR POWELL. You’re right, of course, the labor market in particular has been very strong. But there are, the sectors of the economy that are most interest rate sensitive are certainly showing the effects of our tightening and of course the obvious example is housing, where you see declining activity of all different kinds and house price increases moving down. So we’re having an effect on interest sensitive spending, I think through exchange rates we’re having an effect on experts and imports, I think so, all of that’s happening but you’re right, and we’ve said this, this is a strong, robust, economy, people have savings on their balance sheet from the period when they couldn’t spend and where they were getting government transfers, they’re still very significant savings out there, although not as much at the lower end of the income spectrum, but still, some savings out there to support growth that the states are very flush with cash, so there’s good reason to think that this will continue to be a reasonably strong economy. Now the data, the data sort of are showing that growth is going to be below trend this year. We think of trend as being about 1.8 percent or in that range. We are forecasting growth well below that and most forecasters are. But you’re right, there’s certainly a possibility that growth can be stronger than that. And that’s a good thing because that means the economy will be more resistant to a significant down turn. But of course we are focused on the thing I started with, which is getting inflation back down to 2 percent. We can’t fail to do that, I mean if we were to fail to do that, that would be the thing that would be most painful for the people that we serve. So, for now, that has to be our overarching focus and you see that, I think, in the SEP, in the levels of rates that we’ll be moving to, reasonably quickly, assuming things turn out roughly in line with the SEP. So that’s how we think about it. 

MICHAEL MCKEE. Thank you, Mr. Chairman. In a world of euphemisms that we live in here, with below trend growth and modest increase in unemployment, I’m wondering if I can ask you a couple of direct questions for the American people. Do the odds now favor, given where you are and where you’re going with interest rates, favor a recession, 4.4 percent unemployment is about 1.3 million jobs, is that acceptable job loss? And then, given that the data you look at is backward looking, and the lags in your policy are forward looking and you don’t know what they are, how will you know, or will you know, if you’ve gone too far?

CHAIR POWELL. So, I don’t know what the odds are. I think that there’s a very high likelihood that we’ll have a period of what I’ve mentioned is below trend growth, by which I mean much lower growth and we’re seeing that now. So the median forecast now I think this year among my colleagues and me, was 0.2 percent growth. So that’s very slow growth. And then below trend next year I think the median was 1.2, also well below so that’s a slower, that’s a very slow level of growth and it could give rise to increases in unemployment but I think that’s, so that is something that we think we need to have and we think we need to have softer labor market conditions as well. We’re never going to say that are too many people working, but the real point is this, inflation, what we hear from people when we meet with them is that they really are suffering from inflation. And if we want to set ourselves up really light the way to another period of a very strong labor market, we have got to get inflation behind us. I wish there were a painless way to do that, there isn’t. So, what we need to do is get rates up to the point where we’re putting meaningful downward pressure on inflation, and that’s what we’re doing. And we don’t certainly, certainly don’t hope, we certainly haven’t given up the idea that we can have a relatively modest increase in unemployment, unless we need to complete this task. 

MICHAEL MCKEE. But how will you know, or will you know if you’ve gone too far? 

CHAIR POWELL. It’s hard to, hypothetically deal with that question. I mean again, our really tight focus now continues to be ongoing rate increases to get the policy rate up where it needs to be. And as I said, you can look at this SEP as today’s estimate of where we think those rates would be, of course they will evolve over time. 

also:

NICOLE GOODKIND. Thank you, Chairman Powell. Nicole Goodkind, CNN Business. Existing home sales have fallen for seven months straight, mortgage rates are at their highest level since 2008, yet mortgage demand increased this week and housing prices are still elevated. At the end of your June press conference, you mentioned plans to reset the housing market. I was wondering if you could elaborate on what you mean when you say reset and what you think it will take to actually get there.

CHAIR POWELL. So when I say reset, I’m not looking at a particular, specific set of data or anything, what I’m really saying is that we’ve had a time of a red hot housing market, all over the country, where famously houses were selling to the first buyer at 10 percent above the ask, before even seeing the house. That kind of thing. So, there was a big imbalance between supply and demand and housing prices were going up at an unsustainably fast level. So the deceleration in housing prices that we’re seeing should help bring sort of prices more closely in line with rents and other housing market fundamentals and that’s a good thing. For the longer term what we need is supply and demand to get better aligned so that housing prices go up at a reasonable level, at a reasonable pace, and that people can afford houses again, and I think we, so we probably in the housing market have to go through a correction to get back to that place. There’s also, there are also longer run issues though with the housing market. As you know, we’re, it’s difficult to find lots now close enough to cities and things like that, so builders are having a hard time getting zoning and lots, and workers and materials, and things like that. But from a sort of business cycle standpoint, this difficult correction should put the housing market back into better balance.

NICOLE GOODKIND. [ Inaudible ] Shelter made up such a large part of this hot CPI report that we saw. Do you think that there is lag and that we will see that come down in the coming months? Or do you think that there’s still this imbalance that needs to be addressed? 

CHAIR POWELL. I think that shelter inflation is going to remain high for some time. We’re looking for it to come down, but it’s not exactly clear when that will happen. So, it may take some time, so I think hope for the best, plan for the worst. So I think on shelter inflation you’ve just got to assume that it’s going to remain pretty high for a while. 

_____

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3678.58 as this post is written 

The St. Louis Fed’s Financial Stress Index (STLFSI3) is one index that is supposed to measure stress in the financial system. Its reading as of the September 22, 2022 update (reflecting data through September 16, 2022) is -1.9120:

source: Federal Reserve Bank of St. Louis, St. Louis Fed Financial Stress Index [STLFSI3], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed September 22, 2022: https://fred.stlouisfed.org/series/STLFSI3

Of course, there are a variety of other measures and indices that are supposed to measure financial stress and other related issues, both from the Federal Reserve as well as from private sources.

Two other indices that I regularly monitor include the Chicago Fed National Financial Conditions Index (NFCI) as well as the Chicago Fed Adjusted National Financial Conditions Index (ANFCI).

Here are summary descriptions of each, as seen in FRED:

The National Financial Conditions Index (NFCI) measures risk, liquidity and leverage in money markets and debt and equity markets as well as in the traditional and “shadow” banking systems. Positive values of the NFCI indicate financial conditions that are tighter than average, while negative values indicate financial conditions that are looser than average.

The adjusted NFCI (ANFCI). This index isolates a component of financial conditions uncorrelated with economic conditions to provide an update on how financial conditions compare with current economic conditions.

For further information, please visit the Federal Reserve Bank of Chicago’s web site:

http://www.chicagofed.org/webpages/publications/nfci/index.cfm

Below are the most recently updated charts of the NFCI and ANFCI, respectively.

The NFCI chart below was last updated on September 21, 2022 incorporating data from January 8, 1971 through September 16, 2022 on a weekly basis.  The September 16 value is -.19464:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 22, 2022:  
http://research.stlouisfed.org/fred2/series/NFCI

–

The ANFCI chart below was last updated on September 21, 2022 incorporating data from January 8, 1971 through September 16, 2022, on a weekly basis.  The September 16, 2022 value is -.04348:

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed September 22, 2022:  
http://research.stlouisfed.org/fred2/series/ANFCI

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3767.46 as this post is written

On September 12, 2022, the Business Roundtable released its most recent CEO Economic Outlook Survey for the 3rd Quarter of 2022.   Notable excerpts from this September 12, 2022 release, titled “Business Roundtable Q3 CEO Economic Outlook Index Signals Continued U.S. Slowdown“:

Business Roundtable today released its Q3 2022 CEO Economic Outlook Survey, a composite index of CEO plans for capital spending and employment and expectations for sales over the next six months. The overall Index declined 12 points from last quarter to 84, its long-run average and well above the expansion or contraction threshold of 50.

also:

In their fourth estimate of 2022 U.S. real GDP growth, CEOs projected 2.3% growth for the year.

On August 17, 2022, The Conference Board released the Q3 2022 Measure Of CEO Confidence.   The overall measure of CEO Confidence was at 34, down from the previous reading of 42. [note:  a reading of more than 50 points reflects more positive than negative responses]

Notable excerpts from this August 17, 2022 Press Release include:

The Q3 survey asked CEOs to describe the economic conditions they are preparing to face over the next 12-18 months.  An overwhelming majority—81%—said they were preparing for a brief and shallow recession, with limited global spillover, while only 7% said they do not expect a recession. Thus far, however, CEOs do not seem to be experiencing the recessionary conditions that typified recent contractions. In fact, three-quarters of CEOs say demand has risen or held steady over the past three months.

also:

Current Conditions

CEOs’ assessment of general economic conditions deteriorated further in Q3:

• Just 6% of CEOs reported economic conditions were better compared to six months ago, down from 14% in Q2 2022.
• 77% said conditions were worse, up from 61%.

CEOs remained pessimistic about conditions in their own industries in Q3:

• 25% of CEOs reported that conditions in their industries were better compared to six months ago, up slightly from 24%.
• Conversely, 48% said conditions in their own industries were worse, up from 37%.

Future Conditions

CEOs’ expectations about the short-term economic outlook weakened in Q3:

• Just 7% of CEOs said they expected economic conditions to improve over the next six months, down from 19% in Q2.
• 73% expected conditions to worsen, up from 60%.

CEOs’ expectations regarding short-term prospects in their own industries declined further in Q3:

• 20% of CEOs expected conditions in their own industry to improve over the next six months, down from 28%.
• 48% expect conditions to worsen, up from 34%.

_____

Additional details can be seen in the sources mentioned above.

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 3891.24 as this post is written