{"id":58697,"date":"2023-09-08T19:30:43","date_gmt":"2023-09-08T23:30:43","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/why-financial-markets-may-be-unprepared-for-a-fourth-quarter-inflation-surprise\/"},"modified":"2023-09-08T19:30:46","modified_gmt":"2023-09-08T23:30:46","slug":"why-financial-markets-may-be-unprepared-for-a-fourth-quarter-inflation-surprise","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=58697","title":{"rendered":"Why financial markets may be unprepared for a fourth-quarter \u2018inflation surprise\u2019"},"content":{"rendered":"
\n

A prolonged strike by the United Auto Workers, who could walk out next week, is being seen as one big factor that could contribute to upside inflation risks through year-end and upset financial-market expectations.<\/p>\n

Joseph Kalish, chief global macro strategist, and research analyst London Stockton of Ned Davis Research, see the potential for a stretched-out strike to push up new and used vehicle prices, while encouraging other workers to demand more compensation. Kalish and Stockton have added emboldened unionized labor, along with rebounding medical costs, to the list of factors which could contribute to \u201can unexpected inflation surprise\u201d in the fourth quarter and \u201ckeep the Fed in play before the year is over.\u201d<\/p>\n

Read:<\/strong> Stock market\u2019s 2023 run may hit roadblock after August\u2019s energy-led boost to U.S. CPI and United Auto Workers reject GM counteroffer \u2014 and say \u2018the clock is ticking\u2019 for potential strike<\/p>\n

Higher oil prices aren\u2019t the only problem facing the U.S. when it comes to inflation, and financial markets may not be fully prepared for a scenario in which price gains don\u2019t meaningfully budge from June and July\u2019s levels of around 3%, based on the annual headline rate from the consumer price index. Fed funds futures traders, for example, are mostly expecting no further action by policy makers this year and see a decent chance of interest-rate cuts beginning next May or June. Moreover, stocks
\n DJIA<\/p>\n

SPX<\/p>\n

COMP
\n are still posting year-to-date gains, in contrast to 2022\u2019s dismal performance for equities.<\/p>\n

\u201cThere seems to be a lot of complacency in the markets and from policy makers that inflation will continue to drift down toward the Fed\u2019s 2% inflation target over the next couple of years,\u201d Kalish and Stockton wrote in a note on Friday. But after crude oil touched 2023 highs this week, they said that \u201cthe rise in energy prices will not only have a direct impact on inflation, it will propagate through to other goods and services.\u201d<\/p>\n

Market-based expectations for future price gains have remained relatively stable despite the run-up in oil prices, though inflation traders are now bracing for five straight months of 3%-plus readings in the annual headline CPI rate, including the one for August that\u2019s set to be released next Wednesday.<\/p>\n

A long strike by 146,000 UAW workers at the \u201cBig Three\u201d U.S. automakers \u2014 General Motors
\n GM,
\n +1.17%<\/bg-quote>,<\/span>
\n Ford Motor
\n F,
\n +2.84%<\/bg-quote>,<\/span>
\n and Chrysler \u2014 has the potential to send auto prices \u201csoaring,\u201d according to Kalish and Stockton. <\/p>\n

Meanwhile, the fourth quarter is likely to usher in a reversal in pricing for medical care, a change which could have a greater impact on the Fed\u2019s preferred inflation gauge known as the personal consumption expenditures price index, they said. \u201cNobody who has gone to the doctor in the past 12 months believes prices have retreated.\u201d <\/p>\n

Derek Tang, an economist at Monetary Policy Analytics in Washington, said \u201cthere\u2019s been a lot of talk about things being at an inflection point, whether it be inflation falling or policy makers who could stop rate hikes. But that\u2019s very hopeful and could turn out to be wishful thinking.\u201d<\/p>\n

\u201cWe still have an economy that\u2019s super strong and resilient,\u201d Tang said via phone on Friday. \u201cI\u2019m especially thinking about wage growth being stubborn, which could sow the seeds for inflation further down the road. The Fed is hoping for inflation to fall away, but we don\u2019t have a framework for thinking about what happens in a stubborn-inflation scenario in which inflation is stuck at 3%.\u201d <\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

A prolonged strike by the United Auto Workers, who could walk out next week, is being seen as one big factor that could contribute to upside inflation risks through year-end and upset financial-market expectations. Joseph Kalish, chief global macro strategist, and research analyst London Stockton of Ned Davis Research, see the potential for a stretched-out […]<\/p>\n","protected":false},"author":1,"featured_media":58698,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-58697","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nWhy financial markets may be unprepared for a fourth-quarter \u2018inflation surprise\u2019 | iFintechWorld<\/title>\n<meta name=\"description\" content=\"A prolonged strike by the United Auto Workers, who could walk out next week, is being seen as one big factor that could contribute to upside inflation\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link 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