ACTV - July FOMC
2023-07-25 22:15:00 ET
Summary
- The Fed is meeting on July 24–25, and it will not yet have received the first estimate of Q2 2023 growth, which comes out on July 26, the day after the meeting is concluded.
- The Committee’s PCE preferred measure stood at 3.8% on a downward trend while the CPI for June was at 3.1%.
- On the employment front, data on new jobs created are only available through June.
By Robert Eisenbeis, Ph.D.
The Fed is meeting on July 24–25, and it will not yet have received the first estimate of Q2 2023 growth, which comes out on July 26, the day after the meeting is concluded.
Without those data, what are some of the key data items that the FOMC will be relying upon? Right now, there is relatively current data on inflation for May and June. The Committee’s PCE preferred measure stood at 3.8% on a downward trend while the CPI for June was at 3.1%.
Both core measures were slightly higher, at 4.6 and 4.9%, respectively; but all were trending down, suggesting that the policy pursued was working. On the employment front, data on new jobs created are only available through June.
The 209,000 new jobs created are the fewest in more than three years, and the unemployment rate ticked up to 3.7% in May and 3.6% in June from 3.4% in April.
These numbers imply that a softening in the jobs market is underway. We have data only on Q1 GDP, which was at 2%, down from 2.6% in Q4 2022, and forecasts are for further slowing throughout the rest of the year.
Because of the lags in the data, especially in GDP, the FOMC will clearly place weight in this meeting on information provided through the Beige Book, especially because of its granularity and geographical detail.
The table below provides an attempt to summarize how the respective Reserve Banks characterized key economic trends in their districts. Two key words used are moderate and modest.
According to Sparshott, modest is intended to imply growth slightly below 2%, while moderate growth is seen as slightly above 2% (see Jeffrey Sparshott, “Fedspeak: What's the Difference Between ‘Modest’ and ‘Moderate’?” The Wall Street Journal , Aug. 1, 2013).
The picture from the table below suggests that 6 of the 12 districts saw continued growth, albeit slightly above or slightly below 2%, with another 3 three seeing no change in growth and only 3 seeing a decline.
Four districts – San Francisco, Chicago, Atlanta, and Dallas – account for slightly over 50% of US GDP. Only San Francisco reported a slight decline in growth, while Chicago reported no change and both Atlanta and Dallas reported slight increases in growth. Only San Francisco reported a slowing in the labor market.
Price pressures were mixed; real estate was positive in 8 districts; manufacturing showed signs of slowing in 6 districts and of modest gains in 3 districts. Finally, consumer spending was flat or up in 9 districts.
The picture gleaned from these data is that there are signs of positive growth in the 1.8–2% range, continued modest price pressures, and a relatively firm labor market.
All point to the conclusion that the current policies are working and that the incoming data show little signs of an imminent recession.
This picture leaves the FOMC with two options: another meeting with no change or a slight increase in rates. Markets are predicting a 25 basis-point increase, but they could be surprised.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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July FOMC