Discussion recently has focused on higher interest rates and has been accompanied by discussion of unusual behavior of short-term versus long-term interest rates. Much attention was given to the decrease in short-term rates and increase in long-term rates after the most recent FOMC meeting ending on July 29 (the yield on the two-year Treasury note … Continue reading Get Used to Higher Interest Rates
Does the June CPI Suggest That There Is Light at the End of the Tunnel?
The 0.4 percent decline in the headline CPI in June, as energy prices fell, along with an unchanged core CPI (which excludes energy and food prices), has led some observers to conclude that price stability is now in sight. Indeed, June was the first time in six years that the core CPI did not increase. … Continue reading Does the June CPI Suggest That There Is Light at the End of the Tunnel?
The Jobs Market and Inflation: Is the Glass Half-Empty or Half-Full?
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?
Thomas D. Simpson, PH.D. 