What’s going on with the US economy?
Image: Johns Hopkins University
The Federal Reserve is widely expected to lower interest rates following its meeting later today for the first time since February 2020, with analysts predicting a cut of either 25 or 50 basis points.
Here's a rundown of America’s current economic situation in the lead-up to the Fed’s decision:
Inflation: The Consumer Price Index rose 2.5% year-over-year in August, down from 2.9% in July and the lowest reading since February 2021. Core inflation, which excludes often-volatile food and energy prices, rose 3.2% year-over-year, unchanged from July.
Retail sales: US retail sales unexpectedly rose 0.1% from July to August after increasing by 1.0% the previous month (the largest margin in a year-and-a-half), according to data published yesterday by the Commerce Department.
Consumer confidence: American consumers’ confidence in current business and labor market conditions rose to a six-month high in August, according to data from the Conference Board. A separate index based on consumers' short-term outlook for income, business, and labor market conditions increased in August to its highest level over the past year.
Stocks: After experiencing declines of 5+% between mid-July and early August, all three major US indexes ended up regaining most or all of that ground through yesterday. Overall, all three indexes are up at least 10% over the year-to-date (S&P: +18.8%; Dow: +10.3%; Nasdaq: +19.4%).
Mortgages: The average rate for a 30-year fixed mortgage fell to 6.2% last week, down from 7.18% one year prior and its lowest level since February 2023, according to data from Freddie Mac.
Jobs: The unemployment rate ticked down to 4.2% in August from 4.3% in July, according to the Bureau of Labor Statistics’ latest jobs report. Overall, America’s jobless rate has risen slightly since reaching a modern low of 3.4% last April.
Looking ahead… The Fed is projected to cut interest rates three times before the end of this year, according to economists polled by Bloomberg.
đź“Š Flash poll: To all working professionals: would you consider the growth outlook in your industry/sector of the economy to be positive or negative over the next 12 months?
See a 360° view of what media pundits and economists are saying →
Sprinkles from the Left
- Some commentators argue the Fed should go for an aggressive 50-basis-point cut to bring short-term interest rates into a more neutral position, given that the two objectives of the Fed’s dual mandate – price stability and maximum sustainable employment – have come into much closer balance.
- Others contend that the Fed’s biggest risk lies in not doing enough – and by making a larger cut this month, the Fed could signal that it is taking the warning signs seriously and wants to prevent the worst-case scenario.
- “The Fed Should Go Big Now. I Think It Will.” –Bill Dudley, Bloomberg
- “The US economy looks fragile. There's an easy way to fix that.” –Heather Long, WaPo
- “Inflation Is Fading, Statistically and Politically” –Paul Krugman, NY Times
Sprinkles from the Right
- Some commentators argue that the Fed should proceed with caution when making interest rate cuts, as lowering them back to pre-pandemic levels is risky due to the Fed’s goal of 2% inflation being optimistic at best.
- Others contend that the Fed rate cuts will do little to change public perception of the economy, especially since it will have little immediate effect on underemployed people or those whose salaries have struggled to keep up with inflation.
- “Why Americans Are Sour on the Economy” –WSJ Editorial Board
- “The Fed interest-rate cut is the right move — unless it triggers more inflation” –Peter Morici, MarketWatch
- “Here's why the cost of inflation continues to hurt” –Deseret News Editorial Board
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