Economics

Weekly — November 10, 2022

 

Weekly Economic & Financial Commentary

 
 
United States: October Prices Give Fed Ability to Slow Pace of Rate Hikes
• Relief in October inflation gives the FOMC the ability to slow the pace of rate hikes ahead. But
make no mistake, the Fed's job of taming inflation remains far from over. We still expect it to raise
the federal funds rate 50 bps at its next policy meeting in December, and now look for the policy
rate to reach a peak of 5.25% by March, 25 bps more than we previously forecast, due to near-term
resilience in spending and labor market strength.
• Next week: Retail Sales (Wed), Industrial Prod. (Wed), Housing Starts/Existing Home Sales (Thu/Fri)
International: Mixed Inflation Trends from Latin America
• This week saw some mixed inflation trends from Latin America. Mexico's October CPI slowed to
8.41% year-over-year and energy prices slowed along with fruit and vegetables prices. However,
the core CPI quickened further, and as a result, we fully expect the Bank of Mexico to raise its policy
rate by 75 bps points this week. In Brazil, October inflation slowed further to 6.36% year-over-year,
with lower taxes and gasoline prices as key drivers of the deceleration in recent months.
• Next week: Japan GDP (Tue), China Retail Sales & Industrial Output (Tue), U.K. CPI (Wed)
Credit Market Insights: Consumer Credit Growth Steadies as Banks Tighten Lending Standards
• Total consumer credit growth moderated in September, increasing by $25 billion in a step down
from August’s $30 billion gain. The Fed's quarterly Senior Loan Officer Opinion Survey, which
generally covers the third quarter, found that banks have tightened their lending standards over
the quarter and demand for most business and consumer loan types weakened.
Topic of the Week: Election Day 2022
• Election Day has come and gone in the United States, and although not every race has been
determined, the broad contours of the election outcome have emerged. The most probable
outcome appears to be a divided government, with Republicans controlling at least one chamber of
Congress and the White House still safely in Democrats' hands.
Wells Fargo U.S. Economic Forecast
Actual Forecast Actual Forecast
2022 2023 2021 2022 2023 2024
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
1
Real Gross Domestic Product -1.6 -0.6 2.6 1.1 0.7 0.1 -2.5 -3.2 5.9 1.9 0.1 -0.2
Personal Consumption 1.3 2.0 1.4 1.5 1.2 0.5 -1.7 -3.0 8.3 2.7 0.6 -0.5

Consumer Price Index 2 8.0 8.6 8.3 7.4 6.0 4.2 3.4 3.1 4.7 8.1 4.1 2.7
2
"Core" Consumer Price Index 6.3 6.0 6.3 6.1 5.5 4.7 3.8 3.3 3.6 6.2 4.3 2.9

Quarter-End Interest Rates 3

Federal Funds Target Rate 0.50 1.75 3.25 4.50 5.25 5.25 5.25 5.25 0.25 2.50 5.25 3.25
Conventional Mortgage Rate 4.42 5.81 6.70 6.95 7.00 6.80 6.50 5.80 2.95 5.97 6.53 5.10
10 Year Note 2.32 2.98 3.83 4.15 4.25 4.20 4.00 3.40 1.45 3.32 3.96 2.95
Forecast as of: November 10, 2022
1 2 3
Compound Annual Growth Rate Quarter-over-Quarter Year-over-Year Percentage Change Annual Numbers Represent Average

Source: U.S. Dept. of Commerce, U.S. Dept. of Labor, Federal Reserve Board and Wells Fargo Economics
Please see our full U.S. Economic Forecast and our updated Pressure Gauge.

All estimates/forecasts are as of 11/10/2022 unless otherwise stated. 11/10/2022 12:40:20 EST. This report is available on Bloomberg WFRE
Weekly Economics

U.S. Review
October Prices Gives Fed Ability to Slow Pace of Rate Hikes
There was some clear relief in consumer inflation in October, which is a welcome development for
households and policymakers alike. The headline consumer price index rose "just" 0.4% during the
month, which was below the Bloomberg consensus expectation for a 0.6% gain and caused the year-
ago pace to fall back to 7.7%, or the lowest annual rate of inflation in nine months (chart). Core prices
also rose a more muted 0.3% during the month as core goods prices declined 0.4% amid an easing in
supply chain constraints, which have boosted retail inventories. Core services prices rose 0.5% during
the month, which is still quite fast compared to the pre-pandemic run rate but a bit softer than we
anticipated.
Overall, October's moderation in inflation is welcome, but with the core CPI up at an annualized rate of
5.8% between July and October, there remains a long way to go before inflation returns to a rate the
Fed will tolerate. The way back down to the Committee's 2% inflation goal will also likely be bumpy with
services inflation particularly difficult to stomp out. The October CPI report reduced the likelihood
of another 75 bps rate hike in December, but we expect policymakers to remain biased toward over-
tightening rather than under-tightening for the foreseeable future.
The FOMC noted for the first time it will consider the cumulative degree of tightening and the lags
inherent in monetary policy when deciding on future rate moves at its November policy meeting. Chair
Powell also emphasized the Committee is not done tightening yet. We take this communication and
the lower-than-expected gain in inflation as evidence that the Fed will continue to hike rates, but at a
slower pace, and we forecast the FOMC will hike the federal funds rate by 50 bps at its next monetary
policy meeting.

Headline CPI vs. Core CPI Federal Funds Target Rate

Year-over-Year Percent Change Upper Bound
10% 10% 7% 7%
Federal Funds: Nov @ 4.00%

8% 8% 6% 6%
Forecast

6% 6% 5% 5%

4% 4% 4% 4%

2% 2% 3% 3%

0% 0% 2% 2%

-2% -2% 1% 1%
CPI: Oct @ 7.7%
Core CPI: Oct @ 6.3%
-4% -4% 0% 0%
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 00 02 04 06 08 10 12 14 16 18 20 22 24

Source: U.S. Department of Labor and Wells Fargo Economics Source: Federal Reserve Board and Wells Fargo Economics
Still, as we detail in our latest monthly U.S. Economic Outlook, the uncanny staying power of the
consumer and sustained tightness in the labor market suggest near-term resilience in activity and
keeps the pressure on the Fed to do more. We now project the FOMC will raise rates by 50 bps in
February before a 25 bps hike at its subsequent meeting in March. That would put the upper-end of
the target rate at 5.25%, 25 bps higher than our previous forecast (chart). We expect the FOMC to
hold rates there for the remainder of 2023 before it begins to guide rates lower in response to the
recession, with initial rate cuts taking place at the start of 2024.
The outcome of the U.S. midterm elections held on Tuesday is still not determined, but it looks like the
most probable outcome will be a divided government, which means it will be unlikely to see sweeping
fiscal policy changes over the next two years. Please see this week's Topic of the Week section for more
detail on the election.
(Return to Summary)

2 | Economics
Weekly Economic & Financial Commentary Economics

U.S. Outlook
Weekly Domestic Indicator Forecasts
Date Indicator Period Consensus Wells Fargo Prior
16-Nov Retail Sales (MoM) Oct 0.9% 1.0% 0.0%
16-Nov Industrial Production (MoM) Oct 0.0% 0.2% 0.4%
16-Nov Capacity Utilization Oct 80.4% 80.4% 80.3%
17-Nov Housing Starts (SAAR) Oct 1425K 1412K 1439K
18-Nov Existing Home Sales (SAAR) Oct 4.38M 4.31M 4.71M
18-Nov Leading Index (MoM) Oct -0.4% -0.5% -0.4%
Forecast as of November 10, 2022

Source: Bloomberg Finance L.P. and Wells Fargo Economics

Retail Sales • Wednesday

Monthly Change in Retail Sales
Retail sales were flat in September, coming off of an upwardly- Month-over-Month Percent Change
20% 20%
revised 0.4% increase in August. A 1.4% decline at gasoline stations
Retail Sales: Sep @ 0.0%
and a 0.4% slip at auto & parts dealers weighed on total sales, 16% 16%
offsetting rises at department stores and e-commerce retailers.
Adjusting for inflation, we estimate real retail sales rose 0.3% in 12% 12%
September and sit about 8.5% higher than its pre-pandemic level. In
8% 8%
short, consumers continue to spend despite elevated inflation.
Several retailers pulled forward orders to avoid potential snags 4% 4%

in the supply chain heading into this holiday season. Consumer

0% 0%
spending, while still strong, has gradually slowed at the same time.
In view of the moderation in demand, some retailers started to -4% -4%
move inventory in October with early holiday sales, which may
boost total sales growth in next week's report. Beyond holiday- -8% -8%

related spending, gas prices started to creep back up last month,

-12% -12%
suggesting nominal sales at gasoline stations will boost the headline
figure. We forecast that retail sales increased 1.0% in October, which -16% -16%
translates to about a 0.5% real gain. Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22

Source: U.S. Department of Commerce and Wells Fargo Economics

Industrial Production • Wednesday

Capacity Utilization vs. Industrial Production
Industrial production regained footing in September, rising 0.4% off For Manufacturing, Percent of Capacity, Index of Production
of a 0.1% decline the prior month. Manufacturing (0.4%) and mining 90% 160

(0.6%) rose over the month, while utilities declined 0.3%. Strength in
manufacturing was broad-based, with producers across the durable 85% 140
and nondurable sectors posting monthly gains. Meanwhile, capacity
utilization rose to 80.3%, the highest level since 2008. September's 80% 120
utilization rate marks the fifth above-80% reading this year—an
impressive feat, given the 76% average over the past 15 years. 75% 100

Looking ahead, we anticipate that steady consumer demand for

goods, durable goods in particular, will support manufacturing in 70% 80

the final stretch of this year. Supply constraints are easing, which
should allow producers to chip away at still-elevated backlogs as 65% 60
well. In the mining sector, crude oil production modestly slowed last
month, which may weigh on the overall index. We expect industrial 60% 40
production to increase 0.2% in October, and we look for capacity Capacity Utilization: Sep @ 80.3% (Left Axis)
Manufacturing Production: Sep @ 103.3 (Right Axis)
utilization to inch up to a fresh cycle high of 80.4%. 55% 20
80 84 88 92 96 00 04 08 12 16 20

Source: Federal Reserve Board and Wells Fargo Economics

Economics | 3
Weekly Economics

Housing Starts & Existing Home Sales • Thursday & Friday

Builder Confidence & Housing Starts
The housing market has buckled under the weight of higher Diffusion Index; SAAR in Millions
120 3.0
mortgage rates. Elevated home prices, combined with skyrocketing NAHB Housing Market Index: Oct @ 38 (Left Axis)
financing costs, have crippled buyer demand. Residential Housing Starts: Sep @ 1.44M (Right Axis)
construction has moderated in response, evident in the trend 100 2.5
decline in housing starts this year. Starts plummeted 8.1% month-
over-month to a 1.439 million-unit annual pace in September.
80 2.0
Weakness was broad-based, with single-family (-4.7%) and
multifamily (-13.2%) starts declining. We suspect housing starts
continued to slow in October and look for a 1.412 million-unit pace. 60 1.5

Unsurprisingly, home builder sentiment has soured. The NAHB/

Wells Fargo Housing Market Index (HMI) has declined for 10 40 1.0
straight months, falling eight points to 38 in October. The present
sales gauge slid into contraction territory last month, while the
20 0.5
traffic of prospective buyers component fell to 25, or its lowest
since the initial pandemic lockdown in spring 2020. We will get
another look at builder sentiment Wednesday with the HMI's 0 0.0
November report. 90 93 96 99 02 05 08 11 14 17 20 23

Source: NAHB, U.S. Department of Commerce and Wells Fargo

The HMI's assessment of weaker demand mirrors the precipitous
Economics
fall in existing home sales. Sales of existing homes have declined
for eight straight months, falling to a 4.71 million-unit annual pace
in September. Relative to January, September's sales pace is down
27%. Mortgage applications for home purchases fell around 15%
in October, setting up for another decline in next week's existing
home sales report. We forecast overall sales fell to a 4.31 million-
unit annual pace.
(Return to Summary)

4 | Economics
Weekly Economic & Financial Commentary Economics

International Review
Mixed Inflation Trends from Latin America
This week saw some mixed inflation news from Latin America. Mexico's October CPI inflation was
a slight downside surprise, though remains elevated and well above the central bank's target range.
Headline inflation slowed to 8.41% year-over-year from 8.70% in September, although core CPI
inflation quickened further, to 8.42% in October from 8.28% in September. With respect to overall
inflation, a slowing in energy price gains to 3.10% and fruit and vegetable prices to 12.63% drove the
deceleration. In contrast and in terms of core price pressures, services inflation was broadly steady at
5.30%, while core food and beverage prices quickened to 13.95%. Despite the slight downside surprise,
inflationary pressures remain reasonably persistent and the October outcome is in our view unlikely
to significantly alter the path for Mexican monetary policy. In this context, we fully expect the Bank of
Mexico to raise its policy interest rate by 75 bps to 10.00% at this week's monetary policy meeting.

Mexican Inflation Brazil IPCA Inflation and Interest Rates

Year-over-Year Percent Change
10% 10% 16% 16%
CPI: Oct @ 8.41%
Core CPI: Oct @ 8.42%

8% 8% 12% 12%

6% 6% 8% 8%

4% 4% 4% 4%

CPI, Year-over-Year Percent Change: Oct @ 6.47%

Selic Rate: Nov @ 13.75%
2% 2% 0% 0%
03 05 07 09 11 13 15 17 19 21 08 10 12 14 16 18 20 22

Source: Datastream and Wells Fargo Economics Source: Bloomberg Finance L.P. and Wells Fargo Economics
In Brazil, the October CPI saw another substantial deceleration in annual pace of inflation. To be sure,
October did see a monthly increase in the CPI of 0.59% month-over-month, after three months of
outright declines. On a year-over-year basis however, the CPI slowed further in October to 6.47%.
Lower taxes and cuts to gasoline prices in particular have contributed to the slowing in annual inflation,
as transportation prices slowed to just 1.55% year-over-year in October. A slowing in prices for food
and beverages (11.21%), housing (1.14%) and household goods (10.55%) has also contributed to the
deceleration in annual inflation in recent months.
Slowing inflation, along with fiscal stimulus in the form of increasing cash payments to low-income
households, probably contributed to the gain in Brazil's retail sales for September. Sales surprised
to the upside, rising by 1.1% month-over-month and firming to 3.2% year-over-year. The increase in
September sales was led by fuel, food & beverages, and books & magazines. Still, the solid retail sales
outcome is unlikely to have any immediate implication for Brazilian monetary policy, with the central
bank having clearly signaled an end to its tightening cycle after lifting its Selic rate to 13.75% in recent
months.
Speaking of retail sales, the Eurozone also saw a decent gain in sales for September. Eurozone retail
sales rose 0.4% month-over-month, matching the consensus forecast, while sales for prior months
were revised modestly higher. For the region's largest economies September sales rose in Germany
(0.9%), France (0.2%) and Spain (0.2%), but dipped in Italy (-0.1%). Even with the September increase,
Eurozone retail sales fell 0.7% quarter-over-quarter for Q3 overall. Given still elevated inflation and
weak consumer confidence, we believe retail sales (and broader consumer spending) could also fall in
Q4.
(Return to Summary)

Economics | 5
Weekly Economics

International Outlook
Weekly International Indicator Forecasts
Date Indicator Period Consensus Wells Fargo Prior
15-Nov Japan GDP (QoQ, SAAR) Q3 1.2% 1.2% 3.5%
15-Nov China Retail Sales (YoY) Oct 0.7% -- 2.5%
15-Nov China Industrial Output (YoY) Oct 5.2% -- 6.3%
16-Nov United Kingdom CPI (YoY) Oct -- 10.9% 10.1%
Forecast as of November 10, 2022

Source: Bloomberg Finance L.P. and Wells Fargo Economics

Japan GDP • Tuesday

Japanese GDP Growth
Japan has experienced uneven growth as the country has Year-over-Year Percent Change
12% 12%
rebounded from the pandemic, and that pattern will likely continue
when Q3 GDP figures are released next week. During the second
quarter, Japan enjoyed GDP growth of 3.5% quarter-over-quarter
6% 6%
annualized, as both consumer spending and investment spending
registered solid increase. In recent months however, the economy's
momentum appears to have waned. Higher prices for commodities
0% 0%
and a moderate increase in Japanese inflation have weighed on
consumers' purchasing power, while confidence surveys such as
the Purchasing Managers Indices or the Economy Watchers Survey
have softened. -6% -6%

As a result, Japan is expected to report slower economic growth

for Q3. Third quarter GDP growth is forecast to slow to 1.2% -12% -12%
quarter-over-quarter annualized, reflecting a sharp slowdown in GDP: Q2 @ 1.6%
consumer spending even as investment spending is expected to Private Consumption: Q2 @ 3.1%
Business Capital Spending: Q2 @ 0.3%
continue rising at a steady clip. Against this relatively subdued -18% -18%
economic backdrop, the Bank of Japan appears unlikely to adjust its 07 09 11 13 15 17 19 21
monetary policy stance for the time being, while the government Source: Datastream and Wells Fargo Economics
is also pursuing another fiscal stimulus package to help consumers
deal with higher living costs, while also supporting growth in the
quarters ahead.

China Retail Sales and Industrial Output • Tuesday

Chinese Retail and Industrial Activity
Chinese activity data for October are also due next week, and are Year-over-Year Percent Change, 3-Month Moving Average
30% 30%
likely to also show some loss of momentum. China's economy has
sputtered in recent months and there has been some increase in 25% 25%
COVID cases prompting authorities to reimpose lockdowns in some
port cities and around schools. Those restrictions continue to weigh 20% 20%
on activity and saw confidence surveys soften during October as
15% 15%
the manufacturing PMI dropped to 49.2 and the services PMI fell to
48.7. 10% 10%

That softening in sentiment is expected to be confirmed by a

5% 5%
similar softening in activity data for October. Most notably, growth
in retail sales is forecast to slow to just 0.7% year-over-year, while 0% 0%
growth in industrial output is seen slowing to 5.2% year-over-
year. So far, there have been no clear indications authorities will -5% -5%

move away from their COVID-Zero policy, while challenges in the

-10% -10%
real estate sector also remain a headwind for growth. Against this Industrial Output: Sep @ 4.8%
Retail Sales: Sep @ 3.5%
backdrop, we expect China's economic recovery to remain tentative -15% -15%
and underwhelming through the balance of 2022 and into 2023. 00 03 06 09 12 15 18 21

Source: Datastream and Wells Fargo Economics

6 | Economics
Weekly Economic & Financial Commentary Economics

United Kingdom CPI • Wednesday

U.K. Consumer Prices
U.K. inflation has accelerated sharply during 2022 as higher natural Year-over-Year Percent Change
12% 12%
gas prices have contributed to higher energy costs for households, CPI: Sep @ 10.1%
a trend that should continue with the release of the October CPI Core CPI: Sep @ 6.5%
Services CPI: Sep @ 6.1%
next week. While the government has announced an energy price 10% 10%

cap for all households for a period of at least six months starting
from October, higher wholesale energy prices will nonetheless still 8% 8%
be at least partly passed on to consumers. As a result, we look for
another jump in electricity and gas prices, and see the October 6% 6%
CPI rising 1.8% month-over-month and rising to 10.9% year-over-
year. The latter would represent the fastest pace of CPI inflation for 4% 4%
multiple decades. Broader price pressures will likely remain steady
however, and we anticipate the increase in the October core CPI will
2% 2%
be similar to the 6.5% year-over-year gain seen in September.
As the energy price cap becomes more binding, the Bank of England 0% 0%
expects CPI inflation to remain through the rest of Q4, before
easing from early 2023. The elevated rates of inflation will probably -2% -2%
see the Bank of England raise its policy rate further at upcoming 10 12 14 16 18 20 22
meetings. However, with the U.K. likely already in sharp recession, Source: Datastream and Wells Fargo Economics
easing of inflation could be enough to curtail central bank rate
hikes, and we see a peak in the U.K. policy rate of 3.75% by early
2023.
(Return to Summary)

Economics | 7
Weekly Economics

Credit Market Insights

Consumer Credit Growth Steadies as Banks Tighten Lending Standards
Total consumer credit growth moderated in September, increasing by $25 billion in a step down
from August’s $30 billion gain. The increase was primarily driven by non-revolving credit, which grew
by $16.7B, while revolving credit tacked on an additional $8.3B. Growth in revolving credit, which is
primarily composed of credit cards, moderated over the month, rising just 8.7% compared to August’s
18.1% gain. Nonrevolving credit, which is mostly composed of auto and student loans and is typically
less volatile month to month, rose 5.7%, up from 4.5% the prior month.
September’s consumer credit report was accompanied by the Fed’s quarterly Senior Loan Officer
Opinion Survey (SLOOS), which generally covers the third quarter. The survey found that banks have
tightened their lending standards over the quarter, and demand for most business and consumer loan
types weakened. Bank’s willingness to lend for consumer installment loans slipped to a net -6.8% in Q3
from 5.2%. This is the first negative reading since the Q2-2020 survey conducted following the start
of the pandemic, and only the second time this measure has slipped negative outside a recession in
data going back to the early 1990s. Banks largely tightened standards for all consumer loan types. A
net 18% of banks reported tightening credit card standards, a net 2% tightened auto loan standards
and a net 13% tightened standards for other consumer loans. Lending standards for commercial &
industrial (C&I) loans have tightened the most since the start of the pandemic.
Bank tightening in Q3 was largely driven by recession concerns. The Q3 SLOOS included special
questions covering the likelihood and expected severity of a recession within the next 12 months.
Most banks surveyed assigned a probability between 40 and 80 percent that a recession would occur
within the next year. Foreign banks had a similar recession probability outlook. Most banks surveyed
expect that if a recession were to occur, it would be a mild or moderate downturn, a sentiment that is
in line with our own recession call. Were a recession to occur, 80% of banks expect to further tighten
lending standards going forward.
Even as banks tightened standards for household lending in Q3, Banks Willingness to Lend vs. Revolving Credit
most banks reported an uptick in demand for credit cards. This Net Percent of Banks Reporting Increase in Consumer Loans; Year-
further supports that households are increasingly leaning on 50%
over-Year (4-Quarter Lag)
50%
credit to consume amid elevated inflation. Reported demand for Willingness to Lend: Q3-2022 @ -6.8%
40% Revolving Credit: Q3-2022 @ 14.9% 40%
auto loans fell for the second straight quarter as financing costs
have become increasingly prohibitive for potential car buyers and 30% 30%
consumer demand was largely pulled forward during the pandemic
in this segment. 20% 20%

A record share of banks reported declining demand for residential 10% 10%

mortgages, a move that comes as no surprise as mortgage rates 0% 0%

have risen at record pace this year, recently topping 7% for the first
time in 20 years. On the business side, a greater share of banks -10% -10%

reported weakening demand for CRE loans. A more modest share -20% -20%
reported weaker demand for C&I loans from large and middle-
market firms with a larger drop in demand from smaller firms. -30% -30%

The SLOOS also included new questions regarding FICO score -40% -40%

approvals for credit card and auto loan applications. Banks reported -50% -50%
tightening lending standards for applicants with FICO scores 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22
between 620 and 680 since the beginning of the year. On the flip Source: Federal Reserve Board and Wells Fargo Economics
side, banks have kept lending standards largely unchanged for
applicants with FICO scores north of 720.
Looking ahead, banks’ willingness to lend can provide some insight into changes in revolving consumer
credit down the road. Historically, banks’ willingness to lend leads movements in revolving credit by
about four quarters (chart), and this suggests some coming weakness in revolving credit growth over
the next 12 months. This too is in line with our expectation that consumers continue to rely on their
balance sheets in the near term to consume, but that it becomes more challenging for them to do so
the longer inflation persists and the higher rates go.
(Return to Summary)

8 | Economics
Weekly Economic & Financial Commentary Economics

Topic of the Week

Election Day 2022
Election Day has come and gone in the United States, and although not every race has been
determined, the broad contours of the election outcome have emerged. Republicans appear to be
headed for a small majority in the House of Representatives, a shift from Democrats' small majority in
the current Congress. In the Senate, a few key races have not yet been called, and the Georgia Senate
race is headed to a runoff election to be held on December 6. Depending on how the other uncalled
Senate races in Arizona and Nevada shake out, Georgia's runoff election could again determine which
party holds a narrow majority in the Senate.
The most probable outcome appears to be divided government, with Republicans controlling at least
one chamber of Congress and the White House still safely in Democrats' hands. Under this scenario,
sweeping fiscal policy changes seem unlikely over the next two years, absent a crisis like the one that
occurred in 2020. We do not intend to make any major changes to our forecasts for GDP growth,
inflation or the federal funds rate as a result of the election. Instead, status quo and political gridlock
strike us as the most likely outcomes, with the possibility for some government shutdown/debt ceiling
theatrics over the next two years.
Beyond legislative changes, Republicans recapturing the Senate would have implications for key
nominations made by President Biden. That said, the implications for the makeup of the FOMC likely
would be limited. Among the Board of Governors, there are no current openings, and only Governor
Lisa Cook's term expires over the next two years. As a result, Chair Powell and company should remain
in the driver's seat in their fight against inflation.
Even if the 2022 midterm elections do not prove to be a game changer for financial markets, attention
will turn to the 2024 presidential election in short order. Potential presidential candidates could begin
announcing their intention to run soon, and the 2024 presidential election will occur right before a slew
of scheduled economic policy changes, such as the expiration of big parts of the Tax Cuts and Jobs Act
and the end of Chair Powell and Vice Chair Brainard's terms. Thus, even with monetary policy stealing
the spotlight of late, we suspect prospective federal legislative action will re-emerge into the spotlight
later in 2023.

2022 Midterm Election Results

Republicans Democrats TBD
House 208 185 42
Senate 49 48* 3
*Includes 2 Independents who caucus with Democrats
Source: The Associated Press and Wells Fargo Economics
(Return to Summary)

Economics | 9
Weekly Economics

Market Data • Mid-Day Thursday

U.S. Interest Rates Foreign Interest Rates
Thursday 1 Week 1 Year Thursday 1 Week 1 Year
11/10/2022 Ago Ago 11/10/2022 Ago Ago
SOFR 3.78 3.05 0.05 3-Month Euro LIBOR -0.58 -0.59 -0.57
3-Month LIBOR 4.63 4.51 0.15 3-Month Sterling LIBOR 3.47 3.36 0.11
3-Month T-Bill 4.12 4.13 0.04 3-Month Canada Banker's Acceptance 4.64 4.58 0.49
1-Year Treasury 4.58 4.52 0.10 3-Month Yen LIBOR -0.03 -0.03 -0.09
2-Year Treasury 4.33 4.71 0.51 2-Year German 2.08 2.09 -0.70
5-Year Treasury 3.95 4.37 1.22 2-Year U.K. 3.10 3.10 0.58
10-Year Treasury 3.85 4.15 1.55 2-Year Canadian 3.83 4.06 1.00
30-Year Treasury 4.12 4.18 1.90 2-Year Japanese -0.05 -0.04 -0.11
Bond Buyer Index 4.06 4.16 2.10 10-Year German 2.01 2.25 -0.25
10-Year U.K. 3.29 3.52 0.93
Foreign Exchange Rates 10-Year Canadian 3.14 3.41 1.68
Thursday 1 Week 1 Year 10-Year Japanese 0.25 0.25 0.06
11/10/2022 Ago Ago
Euro ($/€) 1.017 0.975 1.148 Commodity Prices
British Pound ($/₤) 1.167 1.116 1.341 Thursday 1 Week 1 Year
British Pound (₤/€) 0.871 0.874 0.856 11/10/2022 Ago Ago
Japanese Yen (¥/$) 141.960 148.260 113.910 WTI Crude ($/Barrel) 87.21 88.17 81.34
Canadian Dollar (C$/$) 1.338 1.375 1.249 Brent Crude ($/Barrel) 94.19 94.67 82.64
Swiss Franc (CHF/$) 0.968 1.013 0.918 Gold ($/Ounce) 1748.74 1629.49 1849.60
Australian Dollar (US$/A$) 0.658 0.629 0.733 Hot-Rolled Steel ($/S.Ton) 634.00 649.00 1674.00
Mexican Peso (MXN/$) 19.399 19.648 20.638 Copper (¢/Pound) 377.45 342.70 432.30
Chinese Yuan (CNY/$) 7.187 7.302 6.389 Soybeans ($/Bushel) 14.55 14.47 12.05
Indian Rupee (INR/$) 81.806 82.891 74.384 Natural Gas ($/MMBTU) 6.13 5.98 4.88
Brazilian Real (BRL/$) 5.332 5.116 5.498 Nickel ($/Metric Ton) 24,595 24,063 19,502
U.S. Dollar Index 108.276 112.930 94.850 CRB Spot Inds. 562.35 553.27 652.27

Source: Bloomberg Finance L.P. and Wells Fargo Economics

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