Job gains in the May employment report surpassed expectations while the inflation news in the May CPI report continued to be disappointing. The chart below shows that total nonfarm employment rose 172 thousand last month, continuing a string of three months of strong employment gains (averaging 188 thousand per month). Growth in private employment also … Continue reading The Jobs Market and Inflation: Is the Glass Half-Empty or Half-Full?
The Job of Restoring Price Stability Has Just Gotten Harder
Financial markets have been rattled in recent weeks by disappointing news on inflation. A surge in energy prices, resulting from the conflict with Iran, pushed up the twelve-month increase in headline PCE prices 3.8 percent in April (the dotted green line in the chart below), up appreciably from 3.5 percent in March. Moreover, the twelve-month … Continue reading The Job of Restoring Price Stability Has Just Gotten Harder
Is a Soft Landing on the Horizon — Maximum Employment and Stable Prices?
The Fed’s dual mandate is maximum employment and stable prices. Calibrating the maximum level of employment is not simple, but the Fed and other analysts tend to use the unemployment rate as the primary indicator of employment conditions. The consensus is that the level of the unemployment rate consistent with maximum employment is in the … Continue reading Is a Soft Landing on the Horizon — Maximum Employment and Stable Prices?
Inflation in 2026: Up or Down?
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?
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?
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
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
Recent Market Turmoil and Fed Policy?
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?
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
Thomas D. Simpson, PH.D. 