Economics Watch

Why it is doubtful that 2025’s consumption slowdown signals a serious downshift of economics activity, plus a tariff update. Author’s note: Consumer confidence surveys do not have an especially good record when it comes to predicting what consumers will actually do.

Early 2025 inflation data have reinforced the theme that getting back to 2% inflation will take longer than generally anticipated. Henry Willmore examines the recent data and why it will be the second half of the year before the FOMC feels confident enough to resume cutting interest rates.

At its meeting in mid-December, the Federal Open Market Committee (FOMC), the Federal Reserve’s policy-making committee, made some notable changes to its economic forecast for 2025 and adjusted its guidance for the path of interest rates.

The inflation-linked bond market has been pricing in an increasing likelihood of higher inflation during the past few months.

The economy is heading into the final two months of 2024 in very good shape. This has manifested in solid GDP growth, low unemployment, and moderate inflation. However, the current situation is not without risk.

Fiscal policy will also likely see significant adjustments in the coming year, the nature of which will depend upon the outcome of the election.

Another round of better-than-expected inflation data over the course of July has pushed the Federal Reserve to signal that it will cut the Fed funds rate at its next policy-making meeting on September 18.

Unexpectedly high inflation readings during the first three months of this year threw a wrench into the Federal Reserve’s plans to ease monetary policy. The data from April and May have been much more favorable. They have provided reassurance that inflation is indeed on a downward trajectory.

Investors, both domestic and international, have been extremely bullish on America so far this century. More recently, they have been bullish about a small number of companies that happen to be domiciled in one country.

The inflation data during the second half of last year were in various ways too good to be true. The unsustainably good inflation news during the second half led to excessive optimism in the markets…

One of the themes that emerged in the first half of last year about the Fed Funds Rate was the expectation that inflation and interest rates would persist at higher levels than anticipated.

In light of increasingly favorable economic data, it may seem strange to ask what could go wrong. As recent years—and history going much further back—have shown many things could go wrong.

Usually, tightening of monetary policy of the magnitude seen in the past two years results in a substantial correction in asset prices. Some ups and downs notwithstanding, this has not happened in this cycle.

Inflation has slowed considerably this year but remains significantly above the Federal Reserve’s 2% target. Nevertheless, the Fed appears to be ready to declare victory.

GDP (Gross Domestic Product) grew a robust 4.9% in the third quarter of 2023. This included a 4.0% increase in real consumer spending and a 3.9% gain in residential investment, the first increase since the first quarter of 2021. 

The Fed’s program of tightening monetary policy has yielded an unusual development, the easing of financial conditions since last fall.

Assessing economic uncertainties complicates the Federal Reserve’s task in getting a handle on the Fed Funds rate.

In his latest Economics Watch column, Henry Willmore looks at inflation, wages, changes in the labor market, and issues in the banking sector and how the Fed is dealing with these issues.

Inflation slowed from the first half to the second half of 2022, both in price and wage inflation, which is good news for the Federal Reserve. However, a closer look at the data suggests that some of the drop was an unwinding of unusual price increases in the first half of the year.

One of the legacies of COVID-19 has been substantial disruptions to international trade patterns. This continued to play out in 2022 and complicates the outlook for 2023…

After sluggish growth in the first three quarters of 2022, consumer spending appears to have accelerated in the fourth quarter. This is not entirely surprising. Some of the headwinds…

Some important leads and lags will affect the Consumer Price Index (CPI) and other measures of inflation over the next year. One is that between spot natural gas prices and electricity…

For a time, markets and asset prices proved surprisingly resilient in the face of the Federal Reserve’s efforts to cool off the economy. However…

Much depends on what happens with the GDP. The Commerce Department’s initial estimate for second-quarter GDP revealed a 0.9% decline. This followed…

An increasing number of factors indicate that the economy is slowing. The Federal Reserve’s Open Market Committee (FOMC) announced a 0.75% increase…