Economic news continues to be a big part of the news today. The Federal Reserve has been raising interest rates and hiring has been slowing at Bank of America. We also hear about how food prices are predicted to stay high for the foreseeable future.
Bank of America slowing hiring
Bank of America has taken a different approach to hiring and firing in recent years. Its CEO has said that his company is satisfied with its current staffing levels and hasn’t made any plans to lay off any of its workers, despite the economy’s dire state. This is despite the fact that the bank’s economists predict that the nonfarm payrolls will dwindle to just over 175,000 employees in the first quarter of next year.
However, when it comes to the big picture, there are still plenty of uncertainties. For example, a few companies are actually shedding jobs. Others have been cutting back on their mortgage lending operations. In addition, PepsiCo is laying off hundreds of workers in its North American snack and beverage units. And Goldman has been known to fire some of its lower-paid employees, although it has yet to make any public announcements.
In the end, what will ultimately matter is whether or not the top dogs can keep their heads above water. To do so, they will need to cut costs in a way that doesn’t harm their overall franchise.
Fed hikes interest rate
The Federal Reserve hiked interest rates Wednesday for the seventh time this year. This marks the fourth time in a row the central bank has increased the benchmark rate by at least 50 basis points.
A key reason for the increased rates is that the Fed is trying to curb skyrocketing inflation in the United States. Higher energy and food costs have been contributing to inflation.
Despite this, the unemployment rate in the US remains near record lows. Moreover, wages are rising. It’s unclear whether or not this will benefit inflation.
However, the Fed is also trying to cool economic activity. In addition, officials are hoping to keep inflation below the 2% target.
Several economists say that the Fed is attempting to push the economy toward a slow growth path. But if inflation continues to increase, it will be hard to achieve this goal.
At the same time, the Fed has signaled that it plans to raise rates sooner than some had expected. The Fed said it will increase its key short-term interest rate by half a percentage point to an overnight borrowing rate of 4.25% to 4.5%.
Unwind of crisis-era bond purchases to begin in June
The Fed has announced plans to start unwinding crisis-era bond purchases in June. The move will reduce the monthly purchase of $40 billion of mortgage-backed securities to $15 billion, and Treasury securities by $10 billion. In September, the cap for agency MBS will double to $35 billion.
Until now, the Fed’s balance sheet has remained larger than it’s meant to be. That’s due to several rounds of quantitative easing, also known as QE. This was a large-scale intervention to support the economy in the aftermath of the Great Recession.
The central bank bought $4.2 trillion worth of US Treasury bonds. As the bonds mature, the Federal Reserve will accept repayment and pocket the cash.
Some have questioned how the Fed will handle its balance sheet. Unlike previous rounds of QE, the Fed has not been prepared to wind down its asset purchases in a sudden manner. Instead, it has choreographed the process, and is ready to tweak the pace of purchases as necessary.
Food prices likely to remain high in 2023
Food prices are predicted to continue to rise until the end of 2023. That’s a tough proposition for businesses and households alike. The bulk of inflation pressure is expected to come from dairy products, meat, and fruit and vegetables.
Extreme weather events and climate change are also contributing to food supply problems. A number of commodities, including wheat and corn, have had trouble with hot temperatures. This has caused production schedules for some products to be pushed back.
High interest rates have put tremendous pressure on the food industry. This year’s extreme weather events have worsened the situation.
Another factor driving the price increase is higher energy and transportation costs. While some grocery stores are reporting lower prices, the cost of food and drink continues to rise.
According to the World Bank’s food price index, prices have reached an all-time high. It’s expected to remain that way through the next 12 months. Prices are also forecast to rise as much as 5% in 2023.