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  • Writer's pictureByron Gangnes

The Fed's Economy: A Pre-Meeting Update

The Federal Open Market Committee begins its two-day meeting in Washington, DC today. Here's my take on what the Fed will be seeing when it reviews the current state of the US Economy, and what that means for their rate decision.


Just a few of the takeaways:

  • Labor market conditions have eased broadly, but remain tight by historical standards. Monthly job growth has dropped to a level more consistent with trend labor force growth, but average hourly earnings remain stubbornly high.

  • Current economic activity remains strong. Consumer spending is growing at a moderate pace and has picked up recently. Growth estimates for the current quarter are higher than in recent quarters.

  • Indicators of future economic growth are mixed. Survey-based data showing some improvement, and durable goods orders are rising. But excess household savings have been used up, which may slow consumer spending.

  • Deflation progress is occurring, but slowly. Except for the gas price spike, the CPI is notably lower, but the Fed's preferred PCE measure is taking longer to slow, particularly core non-housing services.

The Fed is likely to see this as a mixed picture, but with enough evidence of labor market easing, promises of economic slowing, and partial disinflation to warrant the expected pause in interest rate hikes. But Chair Jerome Powell will make it clear that the inflation-fighting job is far from over.


Financial markets expect the Fed to hold rates at their current level through the middle of next year, with no further rate increases. But failure to see further slowing, especially in consumer spending and core services inflation, could mean another rate hike before the end of the year.


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Federal funds rate (upper bound) and market expectatons




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