In mid-December, the Fed cut its policy interest rate by 25 basis points and conveyed that it likely would be taking a pause from further rate cuts. Nonetheless, Chair Powell and other Fed officials have said that they believe the Fed’s policy remains restrictive, holding down economic growth and inflation. The evidence since that time … Continue reading The Economic Slowdown and Further Disinflation That Has Yet to Happen
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?
Is It Time for the Fed To Ease Off the Brakes Again?
It would be easy to conclude that with the surprisingly small increase in employment for October and the Fed’s subsequent 25 basis point cut in its target for the federal funds rate that the job market may be on the cusp of weakness, inflation has come under control, and the Fed is on a steady … Continue reading Is It Time for the Fed To Ease Off the Brakes Again?
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
Momentum
A short while ago, the thinking inside and outside the Fed was that the economy was slowing, the labor market was cooling, and underlying inflation was on a clear downward path to the 2 percent target. Concern had been growing that the pendulum might be swinging too far in the direction of labor market cooling … Continue reading Momentum
Has the Labor Market Returned to Balance?
Financial market participants and observers greeted the jobs report for June with enthusiasm. The 206 thousand increase in employment, shown in the chart below, was coupled with a 54 thousand downward revision to employment gains in May. Many analysts saw this as a gradual slowing in hiring. Moreover, the unemployment rate climbed higher in June to 4.1 … Continue reading Has the Labor Market Returned to Balance?
Did the May CPI Seal the Deal for Fed Rate Cuts?
The CPI for May prompted euphoria in financial markets and restored expectations of rate cuts by the Fed in the months ahead — the first in September and another by year-end. The S&P 500 stock index rose nearly 1 percent on the day and tacked on another ¼ percent gain the following day. May CPI … Continue reading Did the May CPI Seal the Deal for Fed Rate Cuts?
Back On The Soft Landing Path?
The April CPI numbers were in line with the expectations of market participants. This inflation news seemingly confirmed to market participants that underlying inflation is in the process of falling — after three consecutive months of unwelcome upside surprises. Moreover, other news on the economy was viewed as suggesting that growth has slowed, the labor market has … Continue reading Back On The Soft Landing Path?
Inflation Remains Stubbornly High
February's CPI data disappointed market participants, who were hoping to see more evidence that inflation was gliding down to the Fed's 2 percent target amid continued output growth and a good labor market. That is, market participants were looking for further evidence that a soft landing was in sight. Instead, the twelve-month increase in the … Continue reading Inflation Remains Stubbornly High
The Remaining Inflation Problem
The release of CPI for January again dashed optimism for continued disinflation and near-term rate declines by the Fed. Now, market participants foresee the Fed’s first cut in rates coming around mid-year instead of the spring and the cumulative cut in rates of 75 to 100 basis points in 2024 (100 basis points equal one … Continue reading The Remaining Inflation Problem
Thomas D. Simpson, PH.D. 