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Services and Manufacturing Price Increases Raise Concerns Over Fed's Ongoing Battle with Inflation

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Rising Prices in Services and Manufacturing Raise Concerns Over Fed's Battle with Inflation

Recent economic reports indicate that the Federal Reserve may not be able to declare victory in the fight against inflation just yet. The Institute for Supply Management's readings for the manufacturing and services sectors show increasing price pressures, challenging the notion that the Fed could relax. In August, the ISM reported a four-month high in its services prices index, reaching 58.9% and surpassing July's level by 2.1 points. Similarly, the August manufacturing prices reading was 5.8 points higher than July's level, although it remained below the expansion threshold of 50%. These reports have led traders in the fed funds futures market to increase the likelihood of a November Fed rate hike to about 53%.

Market Reactions and Concerns

The market reacted to the services reading with a jump in the rate-sensitive two-year Treasury yield and a decline in stocks, including a 0.9% drop in the S&P 500. Quincy Krosby, Chief Global Strategist at LPL Financial, noted that the immediate reaction in the Treasury market, with the 10-year Treasury yield rising, indicates that the Fed's job to control inflation is not yet finished. The higher prices of oil and food further compound the concerns.

Policymakers' Stance

While Boston Fed President Susan Collins suggested that policymakers can afford to be patient as new data emerges, she cautioned that further tightening may be necessary if the inflation numbers do not align. This highlights the delicate balance that the Fed must strike in managing inflation and ensuring economic stability. In conclusion, the recent reports of rising prices in the services and manufacturing sectors raise concerns about the Federal Reserve's battle with inflation. The market reactions and policymakers' cautious stance indicate that the Fed's job is not yet complete. Monitoring inflation and making appropriate policy adjustments will be crucial in maintaining a stable economic environment.

Conclusion: Implications for New Businesses

The rising prices in the services and manufacturing sectors, and the potential for further Fed rate hikes, could have significant implications for new businesses.

Cost Considerations

New businesses, particularly those in the services and manufacturing sectors, may face increased costs due to inflation. This could impact profitability and require strategic adjustments to maintain financial stability.
Investment Climate
The likelihood of a Fed rate hike and the market's reaction could influence the investment climate. New businesses seeking investment may need to consider these factors when pitching to potential investors.
Strategic Planning
The cautious stance of policymakers highlights the need for new businesses to monitor economic indicators closely. This can inform strategic planning and help businesses to adapt to changing economic conditions. In conclusion, the rising prices in the services and manufacturing sectors and the ongoing battle against inflation could pose challenges for new businesses. However, these challenges also present opportunities for strategic planning and adaptation. By closely monitoring economic indicators and adjusting strategies accordingly, new businesses can navigate these complexities and position themselves for success.
Story First Published at: https://www.cnbc.com/2023/09/06/rise-in-services-manufacturing-prices-spur-fear-that-fed-may-hike-more.html
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