At which level will the Federal Reserve stop hiking the federal funds rate? The question is hugely important for activity and demand in the US economy as well as for financial markets. During his recent press conference, Fed Chair Jerome Powell remained vague about the reaction function of the FOMC but he did mention that they would be looking at real interest rates. This raises the question which inflation measure to use to move from nominal to real rates. A possible solution is to use the term structure of inflation expectations that is calculated by the Federal Reserve Bank of Cleveland. Despite its significant recent increase, the real one-year Treasury yield is still below that reached during previous tightening cycles, with the exception of 2018
The global manufacturing PMI was down again in October, with significant drops in the United States, the euro area, Austria, Germany, Greece, Italy, Spain, Switzerland and the United Kingdom. China saw an improvement but the index stayed below 50. The steep downtrend of new orders continued in the euro area and its member countries, with the exception of France, where the decline in October was more limited after the big drop the previous month. Orders were also down strongly in the US -where the rebound in September clearly did not last- as well as in the UK. China recorded some improvement. India continues to benefit from strong order inflow.
After posting negative figures for most of 2021, the credit impulse returned to positive territory in early 2022 and rose to unprecedented levels (+3.8 points in August 2022 and +3.7 points in September 2022). This growth contrasts starkly with the sharp slowdown in the eurozone’s GDP in Q3 2022 (+0.2% quarter-on-quarter, compared to +0.8% during Q2 2022), which it undoubtedly helped to limit. After accelerating hugely since spring, in September 2022, outstanding loans to the private sector showed their strongest increase since December 2008 (+6.9% year-on-year), with outstanding loans to non-financial corporations (NFCs) showing their largest increase since January 2009 (+8.9%)
According to the preliminary estimate by the Bureau of Economic Analysis (BEA), annualised quarterly growth in US GDP rebounded sharply in Q3 to 2.6%, following two quarters of negative growth (respectively -1.6% in Q1 and -0.6% in Q2). The upturn in growth was driven mainly by the significant contribution from foreign trade (2.8 percentage points), which was based on the very strong increase in exports of goods and services (+14.4%), while imports fell sharply (-6.9%). Consumer spending (contribution of one percentage point) is holding up quite well given the extent of the inflationary shock. On the other hand, residential fixed investment continued to fall (for the sixth consecutive quarter) and the downward trend was accentuated (negative contribution of -1.4 percentage points).
The number of new Covid-19 cases continues to decline in most parts of the world. For the first time since 20 October 2021, the number of infections has fallen below 3 million per week (seven-day moving average). Thus, 2.45 million new cases were recorded between 27 October and 3 November 2022, a 15% drop compared to the previous week (Chart 1). More generally, the number of new cases continued to fall sharply in Europe (-34%) and, to a lesser extent, Africa (-8%), while it stabilised in North and South America. In Asia, the number of cases is on the rise again (+11%), particularly in Japan (333,980, +25%), South Korea (293,934, +35%) and Taiwan (270,077, -3%).
