Upcoming Events
Monday, May 8
GDPNow Update
Survey of Consumer Expectations Release
Kashkari Speaks at Federal Reserve Bank of Minneapolis Event
Tuesday, May 9
Surveys of Consumers Release
Quarterly Report on Household Debt and Credit Release
Williams Speaks at Economic Club of New York
Wednesday, May 10
CPI Release
Thursday, May 11
PPI Release
Waller Speaks at IE Tower in Madrid, Spain
Friday, May 12
Survey of Professional Forecasters Release
Jefferson Speaks at Hoover Institution Monetary Policy Conference
Saturday, May 13
Cook Speaks at Tuskegee University
Recent News
Pushing pause… The Federal Open Market Committee (FOMC) increased its federal fund rate target range by 25 basis points last week. The target range is currently at 5.0 to 5.25 percent. It seems unlikely at this point that the FOMC will hike rates again when it meets in June.
At the post-meeting press conference, Federal Reserve Chair Jerome Powell said “a decision on a pause was not made” but also called attention to changes in the FOMC’s statement. In March, the FOMC said it “anticipates that some additional policy firming may be appropriate.” It struck that line from the more recent statement. “In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time,” it now says, “the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
Policy path… The big question going forward is how long the Fed will hold its target at the current rate range. In March, the median FOMC member projected the federal funds rate target would close the year above 5.0 percent. But markets aren’t buying it. According to the CME Group, the federal funds futures market is currently pricing in a 71.0 percent chance that the target rate is less than 5.0 percent following the September meeting.
Employment situation… The economy added 253,000 jobs in April, the latest data from the Bureau of Labor Statistics (BLS) shows. The labor force participation rate (62.6 percent) and the employment-population ratio (60.4 percent) were unchanged in April. At 3.4%, the unemployment rate is the lowest it has been since 1969.
The strong labor market should cause one to reevaluate their belief in the Phillips curve, which maintains that central bankers face a tradeoff between inflation and unemployment. Inflation has generally declined since June 2022. Alas, belief in the Phillips curve remains strong—at least among journalists.
“The higher-than-forecast job gain complicates the Federal Reserve’s potential shift toward a pause in interest rate increases,” Lydia DePillis wrote in The New York Times.
“The strong report could complicate the Fed’s deliberations and helps explain why officials think that if they do adjust interest rates, the next move is more likely to be up than down,” Sarah Chaney Cambon wrote in The Wall Street Journal.
What would it take to convince journalists that there is no meaningful tradeoff between inflation and unemployment? Some economists believe no amount of theory and evidence would be sufficient.
Labor market dynamics… Job openings decreased to 9.6 million at the end of March, the BLS reports. There were 11.2 million job opening at the end of 2022.
The number of hires (6.1 million) and separations (5.9 million) changed little in March. Within separations, quits (3.9 million) were more-or-less unchanged, while layoffs and discharges (1.8 million) picked up.