Meetings of the Federal Reserve's Open Markets Committee are about what the Fed is doing; minutes of those meetings tell you something about what policymakers are thinking. Minutes from the December meeting, released on Wednesday, showed policymakers were generally comfortable holding rates steady in the near term after having cut the key lending rate by a full percentage point since September. The minutes offered an interesting conditional statement (our emphasis added) “many participants noted that the Committee could hold the policy rate at a restrictive level, or ease policy more slowly, if inflation remained elevated, and several remarked that policy easing could take place more rapidly if labor market conditions deteriorated.”
Plugging this week's economic data into those conditional statements is a fairly straightforward exercise. First, did inflation remain elevated? In the absence of hard data, the most relevant inflation data this week was survey-based. The ISM prices paid component for the service sector jumped 6.2 points in December to signal the broadest increase in service sector costs since February 2023 (chart), and consumer long-term inflation expectations (5-10 years ahead) broke out of its narrow range rising to the highest level since 2008 in early January. How about labor market conditions; did they deteriorate? On the contrary, the labor market added over a quarter million jobs, the most since March, and the jobless rate fell to 4.1%.
Taking the pulse of policymakers in the context of mixed economic data can sometimes be a delicate exercise, but this is not one of those times. Taking the minutes at their word in the context of this week's data suggests a more compelling case for a pause in interest rate cuts compared to a week ago. Ultimately current economic conditions are not supportive of easing. The Fed is tasked with promoting maximum employment and stable prices. The labor market remains steady. Signs of labor market moderation did not completely go away with the December jobs report, but recent hiring data take some of the sourness out of the summer readings that pointed to a more direct deceleration. It's also hard to imagine businesses are gearing up to let go of a large swath of workers today amid elevated profit margins and resilient service-sector activity. Inflation is also still above target. We'll get fresh inflation data with next week's CPI, but recent hard data suggest progress to the Fed's 2% target has stalled. Through November, the CPI was up at a 2.7% annual rate. The Fed's preferred inflation metric, the PCE deflator, also remains stubbornly above target at 2.4%. While services prices remain the primary driver of inflation today, looming tariff concerns further cloud the trajectory of inflation, encouraging a more cautious approach from Fed officials.
This Week's State Of The Economy - What Is Ahead? - 01 July 2022
Wells Fargo Economics & Financial Report / Jul 14, 2022
As with the Mets and Yankees when they ran into the Astros over the last couple days, consumers staying power is showing signs of running out as inflation persists and confidence moves sharply lower.
This Week's State Of The Economy - What Is Ahead? - 12 August 2022
Wells Fargo Economics & Financial Report / Aug 13, 2022
The FOMC has made it clear that it needs to see inflation slowing on a sustained basis before pivoting from its current stance. The data seems to be going in multiple directions all at once.
This Week's State Of The Economy - What Is Ahead? - 21 October 2020
Wells Fargo Economics & Financial Report / Oct 21, 2020
Mobility is continuing to trickle lower in several major developed market economies. The U.K., France, Italy and Canada have all seen some further modest declines in retail/recreation visits.
This Week's State Of The Economy - What Is Ahead? - 02 July 2021
Wells Fargo Economics & Financial Report / Jul 13, 2021
We added 850,00 jobs in June, but much of that was State governments school districts in some parts of the Country reopening just in time for summer break.
This Week's State Of The Economy - What Is Ahead? - 02 April 2021
Wells Fargo Economics & Financial Report / Apr 08, 2021
Increased vaccinations and an improving public health position led to an easing of restrictions and pickup in activity across the country in March.
This Week's State Of The Economy - What Is Ahead? - 16 October 2021
Wells Fargo Economics & Financial Report / Oct 22, 2021
The first economic data released this week in the United States reinforced the theme that labor supply and demand are struggling to come into balance.
This Week's State Of The Economy - What Is Ahead? - 14 february 2025
Wells Fargo Economics & Financial Report / Feb 17, 2025
The headline and core Producer Price Index (PPI) rose 3.5% and 3.6%, respectively, on a year-over-year basis in January, both above consensus estimates. The increase in the PPI suggests that input prices for businesses are still climbing.
This Week's State Of The Economy - What Is Ahead? - 11 August 2023
Wells Fargo Economics & Financial Report / Aug 15, 2023
During July, both the headline and core Consumer Price Index (CPI) rose 0.2%. On a year-over-year basis, the core CPI was up 4.7% in July. Recent signs have been more encouraging, with core CPI running at a 3.1% three-month annualized pace.
This Week's State Of The Economy - What Is Ahead? - 28 August 2020
Wells Fargo Economics & Financial Report / Aug 26, 2020
After a revised look at GDP this week suggested the second quarter may not have been quite as bad as first estimated, attention shifts to the current quarter.
This Week's State Of The Economy - What Is Ahead? - 23 December 2020
Wells Fargo Economics & Financial Report / Dec 26, 2020
Vaccines are here, but they are not yet widely available in a way that can stem the spread of a disease that grows by 200K a day.
