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
Momentum
A short while ago, the thinking inside and outside the Fed was that the economy was slowing, the labor market was cooling, and underlying inflation was on a clear downward path to the 2 percent target. Concern had been growing that the pendulum might be swinging too far in the direction of labor market cooling … Continue reading Momentum
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
On the Other Hand, The Inflation Battle Has Not Yet Been Won
A widespread view has developed that the Fed has slayed the inflation beast and that declines in interest rates are just around the corner. Participants in the federal funds futures market have priced in declines in the target for the federal funds rate starting next spring and continuing through the rest of the year. They … Continue reading On the Other Hand, The Inflation Battle Has Not Yet Been Won
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
Thomas D. Simpson, PH.D. 