JULIE HYMAN: And as we continue to look towards this week's
FOMC meeting, our next guest says
the Fed is by no means finished with its aggressive rate policy
and expects rate hikes to push forward into 2023.
Let's welcome in S&P Global Chief
US economist Beth Ann Bovino.
Beth Ann, it's good to see you as we watch
this sort of slight choppiness, shall we say, ahead of the FOMC
decision later this week.
Even as there is broad expectation
that the Fed's going to continue to raise rates,
there are also some who are questioning the strategy here
at a time when there's concern over global growth and growth
here in the US and questions about whether the Fed is
sort of attacking the right input of inflation
by raising rates.
How do you view that question?
BETH ANN BOVINO: Well, the Fed has a mandate-- two mandates.
One is managing having job gains at maximizing employment.
We can say they certainly have done that.
The second thing is stable inflation.
And we are nowhere near that looking at the CPI numbers that
came out last week, which showed by no means stabilization--
particularly, the core CPI, which has now climbed higher
and is at three times the Fed's target.
So whatever mandate, whatever inflation target you look at,
it's going in the wrong direction.
And that's why the Fed needs to move.
In terms of growth, yes, it will slow growth dramatically.
And we see the risk of recession next year as a toss up.
But the Fed still has to fight.
It still has to fight inflation.
And I would say right now that the disease
is still worse than the cure.
- What should consumers expect in terms of the actual fullness
of the Fed's policy and their pathway and the decision-making
within their hikes.
What should they expect in terms of a timeline
as to that being fully ingested into the economy?
And when the consumers, themselves,
can perhaps take a breather at the Fed being
done at tackling inflation?
BETH ANN BOVINO: Well, I think the Fed is pushing the levers
to have the consumers respond.
When you see these incredibly high prices,
that certainly means that demand slows down.
But when you add to that higher interest
rates, which also increases borrowing costs,
that's a twofold--
so that you could start to see demand slowing down rather
dramatically most likely next year.
We already see it in housing, as you just had mentioned.
We'll start to likely see it in other areas.
And when demand slows down, businesses
also start to say, well, maybe we don't need as many workers.
You see the unemployment rate tick up a bit.
And that means the economy slows dramatically,
and with that, prices.
But I don't think the impact is really going to be
felt until sometime next year.
Because as somebody said on this call,
that inflation is still around a 40-year high.
It's going to take some time to get down.
- One of the components though, of that homebuilder confidence
as well, is supply chain issues and just
being able to get the necessary inventory
and able to complete some of the housing
starts and projects there as well.
And so with all of that in mind, the things
that are out of the Fed's control,
are we seeing any improvement on that front?
BETH ANN BOVINO: Well, we are.
Again, as you had just said very well, that it
is not in the Fed's control.
The Fed can't make oil, can't make cars.
All they can do is slow demand.
And that's their only measure that they can move.
Now in terms of supply chain disruptions,
it's still a major problem.
It's one of the biggest factors that are causing
this where we are today.
We have seen some signs of softness,
some signs of moderation.
But nowhere near what we need to get to.
That, to me, says that inflation,
as you ask what consumers are thinking
and what they can hope for, I don't see inflation getting
down to even close to the Fed's target
until sometime next year, or maybe even the following.
JULIE HYMAN: So as rates go up, as we see growth start to slow,
it feels as though-- and this is something
that Brad brought up earlier-- that all of this
is going to hit lower income households the hardest.
But do you see it also starting to bite
middle income, even upper middle income households
as this goes on?
BETH ANN BOVINO: Well, I guess the good news, particularly
for lower income households, who most of their share of income
goes into transport, if they have a car.
And so we have seen gasoline prices moderate-- still high,
but come down.
I believe for the last 12 weeks they've been coming down.
So that will certainly help with their purchasing
power in other arenas.
But where other areas are being squeezed, housing.
It's not just in home sales, which we know
home prices have skyrocketed.
And now add to that, interest rates are also incredibly high.
So that's squeezing many people out of the market.
We see that about 60% of households
are now squeezed out of the market
in terms of buying a home.
Not just lower income, it's going into the middle income
bracket as well.
But for lower income households who usually rent homes,
that now, according to HUD data, is at the worst in the history
of the data that HUD tracks.
So in that sense, lower income households
are squeezed dramatically.
It is climbing up the chain of the income strata.
But right now, who gets the brunt?
Lower income households
- Beth Ann, it's always a pleasure to speak with you
and really get some perspective around
how the markets are digesting and anticipating
what the Fed may do in their policy decision.
Beth Ann Bovino, S&P Global Chief US economist,
thanks so much for joining us this morning.
BETH ANN BOVINO: Thanks.