Uncertainty over economic policy has moved to levels reached during the financial crisis of 2008 and the COVID-19 shock of 2020. Policy uncertainty is shown in the chart below by the index of economic policy uncertainty. The principal driver of this surge in uncertainty has been the tariff war. More recently, though, the growing tension … Continue reading Economic Storm Clouds
Recent Market Turmoil and Fed Policy?
With investors’ nerves fraying, there has been a sell-off in the stock market and a flight to safety in Treasury securities. The chart below shows that the S&P 500 index of share prices has fallen 3-1/2 percent from the end of 2024, erasing $1.3 trillion of household wealth. Market analysts have attributed the turmoil in … Continue reading Recent Market Turmoil and Fed Policy?
Will the Fed’s Next Rate Move Be Up or Down?
The Fed announced in late January that it was standing pat on its target for the federal funds rate, following three consecutive rate cuts amounting to 100 basis points. The chart below shows the yield on the two-year Treasury note which can be thought of as expectations of market participants of the average federal funds … Continue reading Will the Fed’s Next Rate Move Be Up or Down?
The Economic Slowdown and Further Disinflation That Has Yet to Happen
In mid-December, the Fed cut its policy interest rate by 25 basis points and conveyed that it likely would be taking a pause from further rate cuts. Nonetheless, Chair Powell and other Fed officials have said that they believe the Fed’s policy remains restrictive, holding down economic growth and inflation. The evidence since that time … Continue reading The Economic Slowdown and Further Disinflation That Has Yet to Happen
Is Another Rate Cut by the Fed Warranted?
Market participants expect the Fed to lower its target for the federal funds rate by 25 basis points on December 18, aided by some signals from Fed policymakers that they are inclined toward such a move. Do recent data support such an action? The recent behavior of consumer prices and developments in the labor market … Continue reading Is Another Rate Cut by the Fed Warranted?
AI, Growth, and Implications for Fed Policy
Few developments have received the attention that artificial intelligence (AI) has received in recent years. Much of that attention has been focused on concerns about job losses, invasions of privacy, and the dangers of self-driving cars, trucks, and buses. Although often forgotten, AI has been around for some time. Computers have been performing highly complex … Continue reading AI, Growth, and Implications for Fed Policy
Did the May CPI Seal the Deal for Fed Rate Cuts?
The CPI for May prompted euphoria in financial markets and restored expectations of rate cuts by the Fed in the months ahead — the first in September and another by year-end. The S&P 500 stock index rose nearly 1 percent on the day and tacked on another ¼ percent gain the following day. May CPI … Continue reading Did the May CPI Seal the Deal for Fed Rate Cuts?
The Recent Inflation News: Groundhog Day All Over Again
The CPI for March again came in above the expectations of market participants and at least some Fed policymakers. Consequently, expectations for Fed policy rate cuts have been pushed back. Instead of expecting the first cut in the target for the federal funds rate from its current 5-1/4 to 5-1/2 percent range in June, market … Continue reading The Recent Inflation News: Groundhog Day All Over Again
There’s Still Momentum in the Economy
The pickup in growth of real GDP to nearly 5 percent in the third quarter, illustrated in the chart below, got a lot of attention. This growth was especially notable since many forecasters had come to expect a recession in the latter part of this year, largely brought on by the Fed's policy tightening measures … Continue reading There’s Still Momentum in the Economy
Can This Really Be a Soft Landing?
The July labor market and consumer price reports were met with a sigh of relief. A reduced pace of labor market hiring and deceleration in the CPI—both headline and core measures—were viewed as pointing to a “soft landing”— a return to low (2 percent) inflation without a recession. Does a careful assessment of recent data … Continue reading Can This Really Be a Soft Landing?
Thomas D. Simpson, PH.D. 