In 2025, headline PCE inflation was roughly unchanged while core inflation edged lower (see the table and chart below). However, core PCE inflation was little changed on a twelve-month basis after the start of the year and both headline and core PCE inflation ended 2025 well above the Fed’s 2 percent target. Consumer prices were … Continue reading Inflation in 2026: Up or Down?
Evolution of Fed Independence and the Current Threat
Since the 1930s, the Fed has been one of the most independent central banks in the world. This was not always the case. However, today the Fed’s independence is being challenged as never before with serious implications for the economy going forward. Starting with the founders, they did not contemplate the United States having a … Continue reading Evolution of Fed Independence and the Current Threat
Stubborn Disinflation
With the 25-basis point cut in the target for the federal funds rate on December 10, the Fed has lowered this target rate a cumulative 175 basis points in fifteen months. Over this time, inflation has remained stubbornly above the Fed’s 2 percent objective while the unemployment rate moved up from 4.2 percent in August … Continue reading Stubborn Disinflation
Is The Time Right for Another Rate Cut?
The release of the CPI data for September was greeted warmly by financial markets. The 0.3 percent increase in the headline CPI and the 0.2 percent increase in the core CPI were in line with expectations. Nonetheless, these data were seen as providing sufficient cover for another rate cut by the Fed, especially when combined … Continue reading Is The Time Right for Another Rate Cut?
Momentum Continues
Crosscurrents are affecting the U.S. economy. Uncertainty about U.S. economic policy (shown in the chart below) remains exceptionally high. This uncertainty reflects the vicissitudes of tariff policy and worries about Fed independence. inducing some caution on the part of business and consumer spenders. Conversely, prospective returns on business investment are getting a boost from broad-based … Continue reading Momentum Continues
Inflation: Time for the Victory Lap?
The CPI release for July fell in line with expectations and was greeted enthusiastically by market participants, propelling stock prices to a new high. Moreover, expectations of a rate cut by the Fed in mid-September, which were heightened earlier in the month by a disappointing jobs report for July, rose further. The headline CPI increased … Continue reading Inflation: Time for the Victory Lap?
The Tough Job Ahead for the Fed
The Fed’s job of achieving the dual mandate of maximum employment and price stability has not gotten any easier of late. Tariff policy and intensified criticism of the Fed from the Administration is adding to policy uncertainty which, as shown in the chart below, is rivaling the periods of the financial crisis and the COVID … Continue reading The Tough Job Ahead for the Fed
The Fed’s Between a Rock and a Hard Place
Seldom has the Fed faced such a challenge. The impact of tariffs will be pushing the economy away from achieving the Fed’s dual mandate—maximum employment and stable prices—at a time when the labor market has been near maximum employment and inflation has been running above the 2 percent target. Moreover, the Fed is getting intense … Continue reading The Fed’s Between a Rock and a Hard Place
Despite the Worries, No Recession Is Imminent
The release of the 0.5 percent drop in real GDP in the first quarter of this year amplified concerns about the economy sliding into a recession. While data show clearly that the economy slowed in the first quarter, it seems unlikely that GDP actually fell. The scurry to beat tariffs by importing goods ahead of … Continue reading Despite the Worries, No Recession Is Imminent
Economic Storm Clouds
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
Thomas D. Simpson, PH.D. 