Welcome to a weekend edition of our economics newsletter. This report aims to offer fresh insight on inflation and other key topics, and a broad roundup of coverage from the WSJ and elsewhere. You can send any suggestions for future editions by replying to this email. —Jeff Sparshott

Q: This week our colleagues reported how Federal Reserve tightening cycles often bring on financial turbulence or even a crisis, and that may be happening now. Why do these things coincide?

Greg: A stretch of easy money brings a host of risky practices, like borrowing short term to lend long, “reach for yield,” and leveraged arbitrage: buying one thing while selling short something similar. When rates go up, short-term loans get harder to refinance, risky asset prices decline and leveraged investors are forced to sell to meet margin calls. This dynamic plays out in derivatives, equities, corporate debt, emerging-market debt and mortgages in past crises: Mexico’s default in 1982, the stock market crash in 1987, the bankruptcy of Orange County in 1994, and the global financial crisis of 2007-09. I’d be surprised if this tightening cycle, the fastest since the 1980s, didn’t trigger something similar. I just don’t know how serious it will be. British pension funds’ leveraged positions in gilts might be an isolated event, or symptomatic of something bigger.

Q: The markets have been begging for something, anything, to make the Fed stop tightening. Will a financial crisis do the trick?

Greg: There’s a saying on Wall Street, “The Fed tightens until something breaks.” Financial accidents are a feature of Fed tightening, not a bug. That’s because higher interest rates dampen growth and inflation by tightening financial conditions, which include lower stock prices, higher private borrowing costs, and a stronger dollar but also things that come with financial accidents such as illiquidity, volatility, lenders pulling back and general risk aversion. Only if a financial accident tightens financial conditions enough to affect inflation or growth would the Fed stop or cut rates, as it did in 2008. The bar today is higher because inflation was under control then, but isn’t now.

Q: If there were a crisis, could the Fed intervene as a lender of last resort while continuing to tighten monetary policy?

Greg: The Fed was founded in 1913 to prevent financial crises by providing liquidity to banks. Monetary policy—managing inflation and unemployment—came later. In theory, the Fed can keep these roles separate. In practice it’s hard because the line between liquidity and monetary policy isn’t clear-cut. When the Fed lends to banks or buys assets, it expands the money supply. Unless it carries out offsetting operations, monetary policy has eased. When the Bank of England bought bonds last week, it said this was temporary to alleviate dysfunction and it would press ahead with bond sales later to tighten monetary policy. We’ll see. If the financial system is crying out for liquidity, it might be a sign monetary tightening has gone far enough and needs to pivot. When Mexico defaulted on its loans in 1982, Fed chairman Paul Volcker worried it would bring down U.S. banks; it may be one reason he eased that year. Ben Bernanke’s first response to the financial crisis in 2007 was to offer banks cheaper loans through the Fed’s discount window. Ultimately he had to cut rates.

Greg writes about the U.S. and global economy from the WSJ's Washington, D.C. bureau. You can follow him on Twitter here and read his columns here.

Inflation is stubborn. Consumer prices are still rising at a rapid clip well more than a year after Federal Reserve Chairman Jerome Powell called growing inflation pressures "transitory." (He has since retired the term.) Economists estimate those pressures are only slowly fading. The annual increase for September's headline consumer-price index is expected to cool slightly from the prior month's 8.3%, pulled down by falling costs for gasoline. Relief on energy prices could be partly offset by another big annual gain for food. Core CPI, which strips out food and energy, could inch higher, held up in part by rising shelter costs. Regardless of the September reading, Fed officials are likely to continue raising interest rates in an effort to slow the economy and bring down inflation.

The Labor Department releases its September consumer-price report on Thursday at 8:30 a.m. ET.

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15.7% — The average annual pay increase for job switchers in the U.S. in September, according to payroll processing firm ADP. That was down from a 16.2% gain in August and the biggest deceleration in the three-year history of ADP's data, suggesting a small loss of labor-market leverage for workers. (ADP) 

$51,974 — The new price tag for Ford's 2023 F-150 Lightning Pro. The auto maker is raising the starting price of its all-electric truck for the second time in recent months, citing supply-chain problems, rising material costs and market factors. As recently as April, Ford said the truck’s price would start at around $40,000. (WSJ)

$41,347 — The average amount financed per new vehicle purchased in the third quarter of 2022, a record, according to Edmunds.com. More vehicles are finally trickling onto dealer lots, but rising interest rates and other economic pressures are starting to put a damper on the car-buying mood. (WSJ)

263,000 — U.S. employment growth in September, the lowest in a year and a marked deceleration from the previous eight months’ average 439,000—yet still far above prepandemic growth rates. Follow our coverage of Friday's Labor Department report here:

• September Jobs Report Shows Payrolls Grew by 263,000, Labor Market Cooled Some (Read)

• Fed on Track for Another Large Interest-Rate Hike After Jobs Report (Read)

• Real Time Economics Special Report: Hiring Slows, Labor Market Stays Tight (Read)

Yes, the labor market is tight and inflation is high. That doesn't mean inflation is high because the labor market is tight. "Although wage and price inflation picked up in a broad-based manner through 2021, real [inflation-adjusted] wages tended to be flat or falling across economies on average. This is an important aspect of the current conjuncture, since falling real wages can be disinflationary by lowering firms’ real costs. An analysis of historical episodes with features similar to today’s suggests that these episodes did not tend to be followed by a wage-price spiral. In fact, inflation tended to fall gradually afterward on average, and nominal wages gradually caught up over several quarters," the International Monetary Fund's John Bluedorn and co-authors write in the IMF's World Economic Outlook.

Uber's driver shortage is over. Andrew Macdonald, Uber’s head of mobility, told the Financial Times that global driver supply was up 70% year on year in August. The improvement was down to a combination of cash incentives, platform improvements and inflationary pressures that are forcing more people to turn to gig work for extra income.

The Fed had better stay the course on inflation. "If you’re paying attention, you should be nervous about growing financial strains in the U.S. and around the world. But the underlying U.S. inflation rate is worse and employment is stronger than they were when the Fed announced the tapering of asset purchases in November 2021. Until there has been tangible progress on inflation, not mere wishful forecasts, the Fed shouldn’t let up—a process that could easily take the federal-funds rate above 5% next year," Harvard's Jason Furman writes in the WSJ.

And just because hockey season is starting: What happens when workers learn how much their colleagues get paid? In 1990, National Hockey League salaries went public for the first time. Players responded by prioritizing highly rewarded offensive stats over team-oriented play. "I find that underpaid players respond to this new information by reallocating effort from defense to offense, which is more highly compensated within the league. Underpaid players begin scoring more, but allow their teams to get scored on by even more than the additional goals they provide," University of Colorado Boulder's James Flynn writes in the Journal of Economic Behavior & Organization.

Real Time Economics comes to you from WSJ economics reporters and editors around the world. Today's issue was curated and edited by Jeff Sparshott (@jeffsparshott), Greg Ip (@greg_ip) and Miguel Gonzalez (@gonzowsj) in Washington, D.C.

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