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
The Policy Challenge Ahead: Any Easy Way Out?
The supply shock from the war in the Middle East is the second negative supply shock in a year, coming on the heels of sharp boosts in tariffs in April 2025. Negative supply shocks have the effects of pushing up prices while holding down output and employment. Moreover, both shocks have come at a time … Continue reading The Policy Challenge Ahead: Any Easy Way Out?
Are Supply Shocks the Only Thing Holding Up Inflation?
Policymakers and analysts are emphasizing that another supply shock—a surge in oil prices—is about to hit measures of consumer inflation at a time when the full impact of the last supply shock—higher tariffs—has yet to be realized. As a result, the time required before the Fed hits its 2 percent target for PCE inflation might … Continue reading Are Supply Shocks the Only Thing Holding Up Inflation?
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?
Evolution of Fed Independence and the Current Threat
Since the 1930s, the Fed has been one of the most independent central banks in the world. This was not always the case. However, today the Fed’s independence is being challenged as never before with serious implications for the economy going forward. Starting with the founders, they did not contemplate the United States having a … Continue reading Evolution of Fed Independence and the Current Threat
Is the Fed Holding Back Disinflation?
The Fed is of the view that inflation is receding toward its 2 percent target. The blue line in the chart below shows that core PCE inflation was 2.8 percent over the twelve months ending in September 2025 (latest data). Although this is the same rate of inflation as a year earlier, the Fed argues … Continue reading Is the Fed Holding Back Disinflation?
Stubborn Disinflation
With the 25-basis point cut in the target for the federal funds rate on December 10, the Fed has lowered this target rate a cumulative 175 basis points in fifteen months. Over this time, inflation has remained stubbornly above the Fed’s 2 percent objective while the unemployment rate moved up from 4.2 percent in August … Continue reading Stubborn Disinflation
Momentum Continues
Crosscurrents are affecting the U.S. economy. Uncertainty about U.S. economic policy (shown in the chart below) remains exceptionally high. This uncertainty reflects the vicissitudes of tariff policy and worries about Fed independence. inducing some caution on the part of business and consumer spenders. Conversely, prospective returns on business investment are getting a boost from broad-based … Continue reading Momentum Continues
Inflation: Time for the Victory Lap?
The CPI release for July fell in line with expectations and was greeted enthusiastically by market participants, propelling stock prices to a new high. Moreover, expectations of a rate cut by the Fed in mid-September, which were heightened earlier in the month by a disappointing jobs report for July, rose further. The headline CPI increased … Continue reading Inflation: Time for the Victory Lap?
Thomas D. Simpson, PH.D. 