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With signs of a slowing economy, economist says inflation won't ease until wage increases steady

Winter morning from Union Wharf in Portland, Maine.
Corey Templeton
via flickr
Winter morning from Union Wharf in Portland, Maine.

Maine real estate and development business people gather in Portland on Thursday to learn about the economic outlook for the year. Among the speakers is James Marple, a senior economist for TD Bank Group. He says the outlook for inflation will depend on the global economy, including the Ukraine war, and its impact on fuel prices, and also the cost of homes rent and supply chain issues due to the pandemic. Marple says interest rates they probably won't go down until wage increases slow.

Morning Edition Host Irwin Gratz spoke with James Marple ahead of the Maine Real Estate and Development Association Conference.

Note: This interview has been lightly edited for clarity.

James Marple: We've seen slowing and interest rate sensitive sectors of the economy, we've seen tech companies that have begun to lay off workers. So we're clearly seeing signs of a slowing there. The overall labor market has remained resilient, though, at least through December and even into January with very low levels of initial jobless claims. I think that is a necessary condition to bringing inflation down.

Irwin Gratz: Would you expect to continue to see the Fed raise interest rates in the months ahead?

I definitely think we're closer to the end and the beginning. And we've had over 400 basis points in in rate hikes to date, and there may be 25 to 50 more, but I think we're more likely to see them pause at that point.

How are consumers at this point? Do they still have a lot of cash to spend on either goods or services?

We looked at things like the level of savings, what it is now and what we thought it would have been but for the combination of stimulus checks and people's inability to spend as they would have as a result of lock downs and the pandemic. And that still is a positive amount, there still is probably some excess savings that is allowing consumers sort of writ large to continue to spend even as we've seen inflation eat away a lot of that real purchasing power. But it's not going to last forever. And in fact, just what we've seen now in terms of the drawdown and savings, it has eaten into a lot of that, and at the current trajectory, by the midpoint of this year, we don't think there will be effectively anything left in the tank to continue to support spending, just in terms of that excess savings. And so that's, in part, why we expect to see a slowdown in the rate of consumption, and therefore economic growth, over the next year.

When you see a lot of the recent layoff notices, especially from tech companies, does that signal a recession may be coming? Or is it going to prove to be cause of recession later this year?

Well, I definitely think the economy is going to slow to a near zero rate of growth. That's our baseline forecast. And that will coincide with an increase in the unemployment rate, whether you want to call that a recession or not, it's kind of semantics. It's hard before it happens. Typically, when the unemployment rate has gone up, it's gone up quickly. But there's been some some catalyst in terms of, sudden loss in confidence — that was the example in 2008, obviously, where the shock was much bigger than anyone had anticipated. But I think outside of the sort of unknown unknown, what we do now is we're going to have to see a material slowdown and we're already seeing leading indicators of that, and some increase in unemployment. That's kind of the best case scenario and of course, a worst case scenario is something unknown breaks and you see things slowing much more than you anticipate.