RESEARCH TRIANGLE PARK – Stocks fell Thursday after a surprise upward revision on U.S. gross domestic product for the third quarter, and more economic news is coming on inflation. So what’s going on?

It’s good, it’s bad, it’s promising, it’s a little ugly, analysts say. Whom do you believe?

Is the Federal Reserve’s campaign against inflation delivering results or can we expect more interest rate increases with millions of open jobs and continuing competition for workers as we near a New Year?

Here’s what four top Triangle economists tell WRAL TechWire:

If more people don’t return to work Fed is fighting losing battle against inflation: Meredith economist

  • Gerald Cohen, Chief Economist, Kenan Institute of Private Enterprise

The [GDP] report – the 3.2% growth and upward revision – reiterates that the economy was clearly not in a recession in the first three quarters of 2022 (despite the two negative quarters in the first half) and that is continuing into the fourth quarter.

The slight upward revision to the inflation numbers also illustrate the challenge for the Fed

But, this data is already far in the rearview mirror. The monthly PCE [personal consumption expenditures] price index numbers for November which will be released [today] will be more informative to the Fed.

[Note: Here’s the report.]

Inflation continues to cool but is still 5.5% up from a year ago

  • Dr. John Graham, professor of finance at the Fuqua School of Business at Duke University:

It is of course good to avoid a recession – so continued moderate economic strength is good.

However, the Fed has been trying to dampen growth in order to get inflation under control, so this does at the margin increase the probability of larger interest rate hikes.

So, yes, higher interest rates in 2023 seems likely.

Companies have been pretty resilient in the face of increasing interest rates and I expect that to continue, as long as rates to not rise more than an additional two percent. If rates increase more than two percent in 2023, that would start to dampen economic growth perhaps too much.

  • Dr. Anne York is Program Director and Professor of Economics at Meredith College:

When real GDP is calculated, it is holding prices constant, so this increase is due to growth in the quantity of output.  Service sector jobs depend on the available labor supply and since our labor force participation rates have not returned to their pre-pandemic levels, that is causing wages to rise, which causes businesses to raise prices.

If we can get more workers to join the labor market, that will then have a deflationary effect on wages and prices.

Then the Fed would not have to continue to raise interest rates to slow down the economy and we would achieve that “soft landing” of a slower growing economy but with low inflation rates.

[For much more from Dr. York, see this exclusive story at WRAL TechWire.]

  • Dr. Mike Walden, William Neal Reynolds Distinguished Professor Emeritus North Carolina State University:

This [GDP] is a good news/bad news report.

Growth in GDP means the economy is expanding, which usually leads to better standards of living.  That’s good.  But the Federal Reserve wants slower growth to take the pressure off prices.  So one implication of the report is more interest rate hikes are on the way.

Still, if the economy continues growing while the inflation rate becomes more tolerable, that will be a great success for Fed policy – the so-called “soft landing.”  Maybe this will be our national holiday gift!

Surprise economic growth triggers stock selloff; economists see good, bad news