The Personal Consumer Expenditures (PCE) price index, the Fed’s preferred measure of inflation, increased by 0.3% in January, bringing the annual rate to 2.4%, down from 2.6% in December. This result, in line with predictions, kept the possibility of a mid-year rate cut on the table.

Traders adjusted their expectations, with Fed funds futures now indicating a 74% likelihood of a rate cut in June, up from 57% before the report. The market now anticipates an 82 basis points reduction for the year, slightly higher than the 78 basis points implied before the data release.

While Fed officials have resisted the idea of imminent rate cuts, emphasizing the need for sustained evidence of inflation cooling, market sentiment remains cautiously optimistic about a potential June rate cut.

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What鈥檚 going on: 鈥淲e are attentive to recent data showing the resilience of economic growth and demand for labor,鈥� Powell said during a talk at the Economic Club in New York. 鈥淎dditional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy.鈥�

• The Fed鈥檚 aim in raising rates has been to reduce inflation to 2%.
• Since it began raising rates in March 2022, however, unemployment has stayed largely steady, and 鈥渆conomic growth has generally remained above the 1.8% annual growth rate Fed officials see as the economy鈥檚 underlying potential.鈥�

A delicate balance: While Powell said there is evidence of a cooling labor market, the Fed must account for new 鈥渦ncertainties and risks鈥濃�攊ncluding the Hamas鈥揑srael war鈥攁s it seeks 鈥渢o balance the threat allowing inflation to rekindle against the threat of leaning on the economy more than is necessary.鈥�

• Data since the central bank鈥檚 last meeting, in September, have shown unexpected U.S. job growth and surprisingly strong retail sales, 鈥渙ffering inconsistent signals about whether inflation is on track to return to the Fed鈥檚 2% target in a timely manner.鈥�

Hike likely: Most Reuters-polled economists expect the Fed to raise interest rates at its next meeting on Oct. 31鈥揘ov. 1.  

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Making matters worse, if your business experiences damage after one of these more severe and more frequent storms, material inflation and supply chain delays could lead to longer recovery periods and even greater financial losses. Put simply, it could cost much more to replace or repair your facility, supplies, and equipment than your insurance currently accounts for.

You鈥檝e invested time and money into your business. While you can鈥檛 prevent severe weather, you can act now to manage your safety, insurance needs, and communication plans to better help protect your business. Review the following recommendations to help you prepare for unexpected risks.

Reassess your property valuations

With the rate of inflation now a constant consideration for manufacturing stakeholders, one overlooked consequence is that businesses could be underinsured because of the rising cost of materials and labor. Much like inflation causes the cost of the goods we buy to increase, the properties you own鈥攊ncluding the equipment inside鈥攃ould cost more to replace if a severe weather event causes damage.

To avoid being underinsured, talk with your insurer and update your property valuation to cover possible gaps. You may also want to consider adding an inflation guard provision, which automatically increases the value of your insured property, at a percentage you set, to compensate for rising costs of materials throughout your policy term.

Maintain a business continuity plan

With risks constantly evolving, it鈥檚 increasingly important to maintain and update a business continuity plan. This can help protect your employees鈥� livelihoods and aid in your business鈥� recovery in the event of a severe weather catastrophe, like a tornado, flooding, or even a roof collapse from heavy snow.

Maintain adequate business income insurance as part of that plan. It can help you pay for overhead and employee wages while you rebuild. It can even cover your lost profits. Supply chain and labor issues in the manufacturing industry mean it could take longer鈥攕ix months to a year or more鈥攖o replace equipment and rebuild facilities, which can lead to lost revenue.

If businesses are unable to cover months of expenses while they recover, they may never reopen. In fact, historically, 25% of businesses don鈥檛 recover following a disaster, according to the Federal Emergency Management Agency (FEMA). If you suffer damage that leaves your business鈥攁nd those you employ鈥攙ulnerable, business income insurance can act like a form of disability insurance for your business.

Flood insurance can also further protect your business. Speak to your insurer to see what鈥檚 available for your situation, based on your business鈥� location.

Keep your most important asset safe

In our current economic climate, employee retention is more important than ever. It鈥檚 your duty as an employer to keep your greatest asset鈥攜our employees鈥攕afe during severe weather events. Identify which severe weather events could affect your business and create a  to meet your needs.

Your action plan should address the following:

• Emergency equipment and supplies. Determine the type, quantity, and placement of equipment like alarm systems, firefighting equipment, and first-aid supplies, as well as long-term needs like clean water and nonperishable food.
• Severe weather drills. Clearly identify exits and conduct drills to ensure safe and orderly exits or sheltering during severe weather.
• Inspections. Assess each facility鈥檚 hazardous materials inventory and develop a plan to keep it secure and protected in the event of severe weather.
• An emergency operations center. Establish a safe space to manage your business remotely during severe weather. Ensure your vital data is backed up and secured off-site, with important paper records kept in a fire and flood-proof location. 

Be prepared for the unexpected

Review the tips which can help you and your insurer protect against catastrophic damages from severe weather鈥攁nd aid in your recovery in an inflationary environment.

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After two straight years of record-setting payroll growth following the pandemic-related disruptions, the labor market is starting to show signs of stress. That suggests 2023 could bring slower hiring or outright job declines as the overall economy slows or tips into recession.

Employers added 223,000 jobs in December, the smallest gain in two years, the Labor Department said Friday. Average hourly earnings were up 4.6% in December from the previous year, thenarrowest increas听since mid-2021, and down from a March peak of 5.6%.

All told, employers added 4.5 million jobs in 2022, the second-best year of job creation after 2021, when the labor market rebounded from Covid-19 shutdowns and added 6.7 million jobs. Last year鈥檚 gains were concentrated in the first seven months of the year. More recent data and a听wave of tech and finance-industry layoffs听suggest the labor market, while still vibrant, is cooling.

鈥淚 do expect the economy to slow noticeably by June, and in the second half of the year we鈥檒l see a greater pace of slowing if not outright contraction,鈥� said听Joe Brusuelas, chief economist at RSM U.S.

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U.S. inflation eased in December for the sixth straight month following a mid-2022 peak as the Federal Reserve aggressively raised interest rates and the economy showed signs of cooling.

The consumer-price index, a measurement of what consumers pay for goods and services,听rose 6.5% last month听from a year earlier, down from听听and well below a 9.1% peak in June.

Core CPI, which excludes volatile energy and food prices, climbed 5.7% in December from a year earlier, easing from a 6% gain in November. Many economists see听increases in core CPI听as a better signal of future inflation than the overall CPI. Core prices increased at a 3.1% annualized rate in the three months ended in December, the slowest pace in more than a year and down from 7.9% in June.

The figures added to signs thatinflation is turning a corner听following last year鈥檚 surge. They also likely听keep the Fed on track听to reduce the size of interest-rate increases to a quarter-percentage-point at their meeting that concludes on Feb. 1, down from a half-percentage point increase in December.

U.S.听stocks climbed听Thursday and investors bought U.S. Treasurys, lifting bond prices and weighing on yields. The S&P 500 added 0.3%, while the听Dow Jones Industrial Average听gained 0.6%, or 217 points. The technology-heavy Nasdaq Composite also rose 0.6%.

Core services and goods prices, change from a year earlierSource: Labor DepartmentNote: Core CPI refers to consumer-price index less food and energy. Core services refers to services less energy services. Core鈥媑oods excludes food and energy items.

Easing inflation follows several signs that U.S. economic activity cooled in late 2022. U.S. imports and exports fell in November from October, while听and home sales all declined. Job and wage growthslowed in December, though the labor market remained tight with听historically low claims for unemployment insurance听at the start of the year.

Goods prices, a key driver of inflation over the past year and a half, fell for the third straight month in December as prices fell for products such as autos, computers and sporting goods.

Improving supply chains and reduced demand have relieved price pressures on goods, but services prices continued to climb in part because of wage gains in a tight labor market. 

Some economists worry that still-high wage growth could keep consumers flush with cash and companies eager to raise prices to compensate, holding inflation above the Fed鈥檚 2% target.

鈥淭aming services inflation will be the Fed鈥檚 biggest challenge this year,鈥� said Ryan Sweet, chief U.S. economist at Oxford Economics. 

We are now reaching the point where the cost of diesel fuel is making some goods too expensive to transport. One trucker told the Orlando Fox affiliate that, 鈥淭he cost of diesel is single-handedly taking us out of the game one by one no matter how big you are.鈥�

If we really want to know why the cost of diesel is increasing faster than the cost of regular gasoline, we need to look at those refining costs. It doesn鈥檛 matter how much we 鈥渄rill, baby, drill,鈥� unless we also have the ability to 鈥渞efine, baby, refine,鈥� 鈥� or we become dependent upon foreign refiners.

The U.S. started 2021 with its lowest annual refining capacity in six years,
and that capacity did not expand significantly over the rest of the year. And as the pandemic鈥檚 effects on American life faded, month by month, demand for fuel increased 鈥� not just from drivers but from trucking and shipping companies, construction companies 鈥� remember, 98% of all energy use in the construction sector comes from diesel 鈥� and from airlines and other consumers of jet fuel.

In short, successive administrations, consumers, and the cultural zeitgeist made it clear to the oil industry that their product did not have a future 鈥� and so oil companies reduced their investments at all stages of seeking out, drilling, obtaining, and refining their product.

With diesel so expensive, keep an eye on jet-fuel prices squeezing the airlines and prompting them to cancel insufficiently profitable routes. The EIA reported this week that, 鈥淓ast Coast jet fuel inventories declined to 6.5 million barrels the week ending April 8, 2022, the lowest for any week since 1990, when we began reporting weekly jet fuel inventories by region.鈥�

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The same survey also found that two years into the coronavirus pandemic, only 19% of Americans rate the coronavirus outbreak as a very big problem for the country, the lowest share out of 12 issues included in the survey. 

In June 2020, in the early stages of the outbreak, 58% rated it as a very big problem, placing it among the top concerns at the time.

Economists and policy makers have long argued that globalization helped to lower prices. As trade barriers fell, domestic companies were forced to compete with cheaper imports.

Technology and trade liberalization encouraged businesses to outsource production to low-wage countries. Generally liberal immigration policies allowed many lower-wage workers to move to richer countries, although the link between immigration and wages isn鈥檛 clear-cut.

That pattern might reverse as the pandemic speeds up the retreat from globalization that has been under way for several years. While supply-chain bottlenecks should eventually ease, other trends could persist: policies such as tariffs and 鈥淏uy American鈥� procurement rules, businesses moving production back to the U.S. where it will be less vulnerable to those policies, and depressed immigration inflows.

鈥淭he reorganization and shortening of supply chains鈥ill have a cost that will be passed down to the vendors and ultimately to consumers,鈥� says Dana Peterson, chief economist for Conference Board, an independent research group supported by large U.S. businesses.

Source: Wall Street Journal