The focus of attention lately has been on the jump in long-term interest rates and whether this jump is doing the work of the Fed. What is behind the increase in long-term rates, and what does it mean for the Fed? It is helpful to note that the long-term Treasury benchmark interest rate—most commonly the … Continue reading The Rise in Long-Term Rates: What Does it Mean for the Fed?
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Obstacles to a Soft Landing
A growing chorus of analysts has been reading recent economic news–especially consumer prices--to be suggesting that the economy is on a glide path to a soft landing—inflation returning to the pre-pandemic pace while avoiding a recession. This soft-landing scenario implies that little or no further Fed tightening will be needed. Indeed, federal funds futures prices … Continue reading Obstacles to a Soft Landing
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?
Inflation News: Bright Spot or Head Fake?
Has the Back of Inflation Been Broken? CPI inflation data for June came in below expectations, prompting a rally in financial markets and raising hope that inflation can be tamed without undergoing a recession—a so-called soft landing. The chart below shows that both headline (the blue line) and core CPI prices (the red line) posted … Continue reading Inflation News: Bright Spot or Head Fake?
Is it Time for the Fed’s Pause to End?
The Issue: At its mid-June FOMC meeting, the Fed announced that it was holding its target for the federal funds rate unchanged at 5 to 5-1/4 percent following ten consecutive increases that accumulated to 5 percentage points. The Fed reasoned that it wanted time to assess the impact of previous rate increases and the extent … Continue reading Is it Time for the Fed’s Pause to End?
Time for the Fed to Pause?
The issue: The Fed has sent out signals that it is inclined to pause rate hikes at its upcoming June meeting after successive increases over the past ten FOMC meetings dating back to March 2022 (see chart below). The cumulative increase in the target for the federal funds rate has been 500 basis points (100 … Continue reading Time for the Fed to Pause?
The Debt Ceiling Confrontation: Is it Necessary?
The current debt ceiling—at $33.4 trillion—is expected to be reached around June 1. Once the ceiling is reached, the Treasury has a few gimmicks that it can use, such as delaying payments to the pension fund for federal employees, to postpone hard choices regarding which claims on the Treasury are to be paid. However, once … Continue reading The Debt Ceiling Confrontation: Is it Necessary?
Has Fed Tightening Come to an End?
At its May 3 meeting, the Federal Reserve (Fed) raised the target for the federal funds rate ¼ percent and signaled that it would be watching incoming data to determine whether any further increases would be needed to place inflation on a downward trajectory toward the Fed’s 2 percent target. As shown in the chart … Continue reading Has Fed Tightening Come to an End?
Recent Banking Disturbances and Implications for Fed Policy: What You Need to Know
The high-profile closing of Silicon Valley Bank (SVB) on March 9 and the subsequent closing of Signature Bank, the rescue package for First Republic, and the resolution of Credit Suisse have raised concerns about the health of regional commercial banks in the United States and certain big foreign names. Some have claimed that we are … Continue reading Recent Banking Disturbances and Implications for Fed Policy: What You Need to Know
Stubborn Inflation: Implications for Monetary Policy
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
Thomas D. Simpson, PH.D. 