If the old adage about the devil you know is true, and there is indeed comfort to be found in the familiar, this last week was, for the most part, a potential source of solace. The tightness of the labor market continues, with Initial Claims hitting the lowest weekly number in more than 50 years (admittedly, this was on a seasonally adjusted basis, unadjusted claims were up 7.6% WoW). Inflation continues to run hot, as shown by the latest PCE numbers, which were broadly in line with expectations at 5.0% and 4.1% for headline and core PCE, respectively. Supply chain snags continue, with Chinese quarantine restrictions snarling shipping schedules. And the familiar trend of souring consumer expectations continues (unfortunately), with November’s final reading of Real Income Expectations in the University of Michigan’s survey confirming its fall.
President Biden’s announcement that he is nominating Jerome Powell for a second term as Fed chair is also a case of more of the same, with Biden saying that Powell is “the right person to see us through” and looking for “stability and independence at the Federal Reserve” at this point of “both enormous potential and enormous uncertainty for our economy”.
The latest Covid headlines have, however, introduced a new devil in the form of the recently dubbed “Omicron” variant. This strain, which has spread rapidly in South Africa, has recently been found in several countries, including Hong Kong, Israel, and Belgium. While scientists are rapidly working on learning more about the potential ramifications of the variant’s various mutations, countries are already taking action to restrict travel. The UK has added six southern African countries to its “red list”, and the European Commission has recommended that EU countries take a similar approach to curtail travel from select countries.
