US Fed wants to cool spending; a strike, a shutdown and student loans may add ice

WASHINGTON, Sept 18 — US Federal Reserve officials, who have tentatively embraced the possibility they can squelch inflation without a recession, meet this week with an autoworkers strike, a possible federal government shutdown, and a student loan squeeze on consumers posing new risks to that best-case outcome.

But with the economy already expected to slow over the final months of the year, prolonged disruptions in the auto industry and at federal agencies could have unpredictable results: Sapping consumer spending, possibly pushing up car prices in a blow to the Fed’s inflation fight, and producing the sort of knock to business and consumer confidence that could spell the difference between a “soft landing” and a downturn.

As an added risk, Reinhart said the drawdown of the Fed’s balance sheet is now reaching levels that could unexpectedly tighten financial conditions. Central bankers at this point have been offering little guidance about upcoming decisions anyway. They are likely near the end of rate increases they began in March of 2022 to fend off high inflation but are not ready to say with any certainty that rates have peaked, or indicate when they might be cut — in part because they are divided about the next steps.

A widening strike could cut vehicle production by a third, and, accounting for the spinoff effects throughout the economy, shave as much as 0.7 percentage point from growth for as long as it continues — a large amount for an economy where trend growth is estimated at about 1.8 per cent a year. Pantheon Macroeconomics’ Ian Shepherdson and Kieran Clancy noted this week that a jump in payments to the US Department of Education coincided with a drop in online searches “for ‘plane tickets’, ‘restaurant reservations’, and ‘new cars’,” with the daily headcount of airline passengers dropping and other hard data “offering no hint of any near-term improvement.”

Source: Education Headlines (educationheadlines.net)

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