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The most recent consumer price data (for January) were a disappointment. As shown in the chart below, headline inflation (the blue line) picked up largely owing to a swing in energy prices. However, even when volatile energy and food prices are removed, core inflation (the red line) ticked higher, raising doubts about whether underlying inflation … Continue reading Stubborn Inflation: Implications for Monetary Policy 

The Federal Open Market Committee raised its target for the federal funds rate ¼ percentage point on February 1 and suggested that a couple more similar-sized increases will be forthcoming. Fed policymakers further indicated that they will be assessing the lagged effects of previous rate increases and whether those effects are unfolding in line with … Continue reading Fed Policy: The Importance of Vigilance

The decisions facing the Fed are getting more difficult. A year ago, persistently high inflation readings made it clear that the Fed was way behind the curve in getting control of inflation and there was consensus that aggressive tightening was needed. In response, as shown in the chart below, the Fed raised its target for … Continue reading The Fed’s Upcoming Judgment Calls

The Fed’s fight against inflation proceeded through 2022. During the year, the Fed raised its target for the federal funds rate seven times, lifting the target from 0 percent to 4.25 percent (these interest rates are at the lower ends of a ¼ percent range). In its most recent projections in mid-December, the Fed projected … Continue reading The Fight Against Inflation: Where Are We Now?

Recent labor market and inflation data and comments from Fed officials have done little to clarify the trajectory of Fed interest rate policy. Indeed, the rift between the views of market participants and Fed officials appears to have widened. Market participants read the consumer price data for November, released at the time of the Fed’s … Continue reading The Inflation Battle: Is the Fed Close to the Finish Line?

On September 23, the new prime minister of the United Kingdom, Liz Truss, surprised financial markets by announcing a deficit-expanding fiscal package that included large tax cuts and energy subsidies. This announcement triggered concerns by market participants that Britain may be moving onto a path that would result in it being unable to service its … Continue reading The U.K.’s Recent Budget Turmoil: The Canary in the Coal Mine

The October CPI data released on November 10 were greeted enthusiastically by financial market participants. Not only were the headline and core price increases the smallest in months, but both measures came in well below expectations. Does this mean that the back of consumer price inflation has finally been broken and that the Fed can … Continue reading Inflation in the Rear View Mirror?

Recent data on the labor market, including the October monthly employment report and weekly initial claims for unemployment insurance, indicate that excess demand for labor persists. The extremely tight labor market was an underlying theme of Fed Chair Powell’s press conference on November 2. The chart below shows the excess of job openings over the … Continue reading The Hot Labor Market and Outlook for Fed Policy

The Consumer Price Index (CPI) for September all but guaranteed that the Fed on November 2 will hike the federal funds rate another 75 basis points to 3-3/4 to 4 percent from its current 3 to 3-1/4 percent. As shown in the chart below, headline inflation—the blue line—stayed above 8 percent in September while core … Continue reading Is the Pace of Fed Tightening Slowing Soon?

Recent news confirms that the Fed’s job of tightening monetary policy has a ways to go. The September employment report conveyed an ongoing tight labor market and the reluctance of idled workers to return to the labor force—with implications for a continuation of inflationary pressure coming from this market. The most recent report on job … Continue reading Fed Policy: Getting Closer