Dashboard Capital Markets December 2023

Dec 4, 2023 | Dashboard, Restaurant Research

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Summary of Powell’s Recent Speech

  • Powell’s recent speech suggests that rate hikes are still on the table even though the Philadelphia Fed’s economic projections (see chart & table below) suggest that a rate cut may make more sense. Powell further indicated that there is generally a lag to the effects of monetary tightening, suggesting that these projections could be optimistic.
  • According to Powell, “Like most forecasters, my colleagues and I anticipate that growth in spending and output will slow over the next year.”
  • “The FOMC is strongly committed to bringing inflation down to 2% over time, and to keeping policy restrictive until we are confident that inflation is on a path to that objective”.
  • “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so”.

Comments on Labor

  • Today, labor market conditions remain very strong, and the economy is returning to a better balance between the demand for and supply of workers. The pace at which the economy is creating new jobs remains strong and has been slowing toward a more sustainable level. 
  • The supply of workers has bounced back, as people have come back into the labor force and as immigration has returned to pre-covid levels. Partly because of that labor force growth, the unemployment rate has edged up over the second half of the year, though it remains historically low at 3.9%.
  • The increase in participation has been particularly strong among women in the prime working ages of 25 to 54, which surged to an all-time high earlier this year, and which remains well above pre-covid levels.
  • Wage growth remains high but has been gradually moving toward levels that would be more consistent with 2% price inflation over time, and real wages are growing again as inflation declines.

Comments on Inflation

  • Over the 6 months ending in October, core inflation ran at an annual rate of 2.5%, and while the lower inflation readings of the past few months are welcome, that progress must continue if we are to reach our 2% objective.
  • Monetary policy is thought to affect economic conditions with a lag, and the full effects of our tightening have likely not yet been felt.

Source: Opening remarks by Chair Powell at a fireside chat at Spelman College – Federal Reserve Board

Philadelphia FED Economic Forecast November

Philly FED Forecast Table

November’s Restaurant Stock Performance

  • Restaurant stocks have been recovering nicely, consistent with 3Q’s financial reporting which generally revealed healthy top-line growth to go with margin recovery as inflation comes under control.
  • It’s not clear how another rate hike could possibly help restaurant operators who are finally enjoying lower costs. However, a rate hike would certainly weaken lower-income consumers who are currently struggling to make ends meet.

QSR Stock Performance

FSR Stock Performance

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