Expansion hits a bump in the road as supply constraints linger

Economic Review: Growth slowdown deepens amid extreme supply chain disruptions (Page 3)

The deceleration of economic activity looks deeper than previous estimates as the economy continues to be held back by supplier delays and labor shortages. Nonfarm payrolls disappointed again (although the overall employment report wasn’t actually weak), almost certainly due to a lack of workers rather than firms lowering their demand. Moreover, supply chain issues are holding back manufacturing and services production (although both sectors continue to show growth). Consumers have shown resilience through the Delta surge but cannot fully offset the negative supply chain impacts holding back overall economic growth.

Financial Markets Review: Another down September for equity markets (Page 4)

The S&P 500 Index retreated by almost five percent in September, ending its seven-month positive streak and repeating a calendar phobia. A rise in Covid case counts and persistent supply bottlenecks weighed on investor sentiment. Energy prices surged, further hampering supply chains, pushing up gasoline prices, and signaling higher heating costs in the upcoming winter. Fed Chair Jerome Powell hinted that an announcement on tapering could happen soon, lifting interest rates and slightly steepening the yield curve. Moreover, additional fiscal stimulus and the debt ceiling remained embroiled in a contentious political debate.

The Outlook: Tapering is not tightening (Page 5)

Perhaps no story has captivated financial markets in 2021 quite as much as the Federal Reserve’s movement toward reducing the size of its quantitative easing (QE) program. Monetary policymakers were steadfast for much of this year that the economic conditions required for a tapering of this program had not yet been met, but the tone has changed considerably in recent months. The statement released after the Federal Open Market Committee (FOMC) meeting on September 22, for example, indicated that “a moderation in the pace of asset purchases may soon be warranted,” a point that was underscored by Chair Jerome Powell in the subsequent press conference. Barring a significant shift in the outlook, a taper announcement is likely to be soon forthcoming

Go deeper with the full October report linked below.