During its most recent policy meeting last week, the Federal Reserve acknowledged that there was a considerable amount of uncertainty. Recent economic indicators point to a confusing, contradictory picture of the current U.S. economy. Now, every day, policymakers are understandably focused on signs of weakness in these markets for housing and jobs. Consequently, they are looking for an interest rate reduction even sooner.
Yet, in just the last few months, we’ve received reports that the housing recovery has stalled. Increasing costs paired with a low inventory are creating challenges for new buyers to build upward momentum. This manufacturing downturn has made many economists and investors quite nervous about the overall economic outlook. The quickly cooling housing market is a barometer of other larger economic trends at play. That slowdown will weigh on consumer spending and broader growth.
The jobs market is beginning to cool. In short, weekly jobless claims figures continue to paint a picture of overall modest unemployment growth. Recent softening in the labor market data have ignited debates among Federal Reserve policymakers. Now they’re floating ideas about a ‘dovish’ pivot to raise long-term interest rates. As the job market softens, the Fed is contemplating an earlier cut in interest rates to stimulate economic activity.
In recent weeks, market observers have pointed to a thematic change in focus from macroeconomic data and the central bank’s expected monetary policy reaction. So investors are understandably focused on any signs of labor market weakness. Their primary concern appears to be the effect it will have on consumer confidence, and therefore spending. The uncertainty surrounding future economic conditions has left many awaiting further clarity on the trajectory of both payrolls and inflation.
Yesterday’s Federal Reserve policy meeting reiterated the call for at least another data point. This kind of detail is key to sorting out today’s conflicting economic predictions about payrolls and inflation. The central bank is making big moves to steer through turbulent waters. Its decisions corpus will be immensely important in helping to establish the economic landscape in the months to come.