Upcoming Events
Tuesday, February 6
Quarterly Report on Household Debt
Mester Speaks at Ohio Bankers League Economic Summit
Harker Speaks at Rowan Institute for Public Policy & Citizenship
Wednesday, February 7
GDPNow Update
Kugler Speaks at Brookings Institution
Bowman Speaks at Uneven Outcomes in the Labor Market Conference
Thursday, February 8
GDPNow Update
Friday, February 9
Survey of Professional Forecasters Release
Logan Speaks at Tarrant County Transportation Summit
Recent News
Tighter than a hangman's knot… The Federal Open Market Committee (FOMC) held its federal funds rate target range at 5.25 to 5.5 percent last Wednesday. The big question now: when will the FOMC start cutting its target rate range?
Inflation has fallen faster than FOMC members expected in recent months. In December 2023, the median FOMC member implicitly projected prices would grow at an annualized rate of 2.0 percent in November and December. (At the time, data was only available through October.) We now know that prices grew at an annualized rate of just 0.6 percent in November and December, well below FOMC member projections.
Recall that the real federal funds rate is equal to the nominal federal funds rate minus inflation. Since inflation has been lower than FOMC members expected in recent months, the real federal funds rate has been higher than FOMC members expected. In other words, monetary policy has been tighter than FOMC members intended.
Considering that inflation has averaged 2.0 percent over the last seven months and real rates are now higher than FOMC members intended, one might expect the FOMC to begin cutting its federal funds rate target range in March. However, at the post-meeting press conference, Federal Reserve Chair Jerome Powell said a March rate cut is “probably not the most likely case or what we would call the base case.”
We're going to be looking at this meeting by meeting. Based on the meeting today, I would tell you that I don't think it's likely that the Committee will reach a level of confidence by the time of the March meeting to identify March as the time to do that. But that's to be seen.
The CME Group currently puts the odds of a March rate cut at 15.5 percent.
Employment situation… The economy added 353,000 jobs in January 2024, according to the latest release from the Bureau of Labor Statistics (BLS). However, as Jason Furman notes, the seasonal adjustment in January requires taking this estimate with “a grain of salt.”
Total nonfarm payroll employment was revised up by 9,000 for November 2023, from +173,000 to +182,000. It was revised up by 117,000 for December 2023, from +216,000 to +333,000.
The labor force declined from 167.5 million in December 2023 to 167.3 million in January 2024, while the total number of employed persons remained roughly unchanged at 161.2 million. The total number of unemployed persons declined from 6.3 million to 6.1 million, with the unemployment rate unchanged at 3.7 percent.
JOLTS… The number of job openings increased slightly in December 2023, the BLS reported last week. There were 9.0 million openings on the last business day of December, compared with 8.9 million on the last business day in November. Job openings have generally declined over the last year. There were 11.2 million job openings on the last business day of December 2022.
According to the BLS, there were 5.6 million hires in December 2023, which was not much higher than in November 2023. There were 5.4 million separations, which was not much lower than in the prior month.
Within separations, there were 3.4 million quits (down from 3.5 million) and 1.6 million layoffs and discharges (up from 1.5 million).