The Fed has a dual mandate of maximum employment and stable prices. While the level of employment is three and a half million below the peak at the onset of COVID, chart below, other labor market indicators suggest that maximum employment has been achieved (see December 19, 2021 commentary, Get Ready for Fed Liftoff). The … Continue reading Tough Choices for the Fed
The time for Fed liftoff—the first step in raising the policy interest rate—has gotten a lot closer. In August 2020, the Fed specified that liftoff would begin once three conditions were met: inflation reached 2 percent; inflation was projected to be moderately above 2 percent for some time, and its maximum employment mandate had been … Continue reading Get Ready for Fed Liftoff
Source: “Transitory.” Merriam-Webster.com Dictionary, Merriam-Webster https://www.merriam-webster.com/dictionary/transitory. Concern about inflation has been mounting over recent months and was punctuated by the 0.9 percent increase in the CPI for October (11 percent at an annual rate). Public opinion polls are indicating that concern about the inflation outlook has been steadily rising. Meanwhile, Fed policymakers have been saying that … Continue reading Inflation: Is it Really Transitory?
It bears repeating that this business cycle has been like no other. The COVID shock produced the steepest contraction in output but the shortest recession on record. Spending on nearly everything except food purchased from grocery stores dropped precipitously. In the face of the lockdown, production of nearly everything also dropped off sharply. In a … Continue reading Placing the Expansion in Perspective
Restraints on the supply of goods and services continue to hold back economic expansion and boost inflation. Ongoing restraints on supply were confirmed by the employment report for September which showed overall job gains of only 194 thousand in contrast to expectations of 475 thousand. To be fair, private payroll increased 317 thousand in September … Continue reading Supply Restraints Continue to Bedevil the Economic Expansion
The Consumer Price Index (CPI) for August was greeted with relief. Headline inflation slowed to 0.3 percent from 0.9 percent two months earlier while core inflation (with volatile food and energy prices removed) slowed to only 0.1 percent in August. The moderating of inflation is illustrated in the table below. Note that the increase in … Continue reading Has the Inflation Dragon Been Slayed?
The economy has decelerated in the current quarter from the 6 percent plus rate of growth in the first half of the year. This slowdown has been most evident in spending by consumers. As shown in the chart below, growth in personal consumption expenditures—which account for nearly 70 percent of total output—has ground to a … Continue reading The Pause in the Expansion
Source: Merriam-Webster Dictionary Infrastructure is the set of fundamental facilities and systems that support the sustainable functionality of households and firms, serving a country, city, or other areas, including the services and facilities necessary for its economy to function. (Source: Wikipedia) The term infrastructure entered the vocabulary of public policy discussions in the 1970s when … Continue reading Infrastructure: Time for a Fresh Look
The employment report for July was widely hailed as a strong report. Total nonfarm employment rose nearly 1 million (943,000, the blue bar in the chart below) and the unemployment rate dropped 1/2 percentage points to 5.4 percent. However, as in June, a sizable portion of the gain in employment occurred in the state and … Continue reading Supply Restraints Continue to Hold Back the Economy (Revised)
The second quarter turned out to be something of a disappointment. Output was expected to grow at nearly a double-digit pace over much of the quarter, but came in at a 6-1/2 percent rate—little different from the first quarter. This is illustrated in the chart below produced by the staff of the Federal Reserve Bank … Continue reading The Economy: What Have We Learned from the Second Quarter?