The economic expansion has advanced from the initial recovery, and the focus is now on metrics the Federal Reserve is looking at to gauge the health of the economy. Since the Fed’s dual mandate is to keep prices stable and maximize employment, we will focus on labor and inflation metrics, keeping in mind the broader economic impact as well. We created a Fed Monitor to track some of the data points that will impact the Fed’s decisions to tighten financial conditions. Additionally, we try to quantify the data and information outside of the dashboard to determine if the Fed is being more dovish than the data, and likely to be more aggressive in the future, or if they are being hawkish relative to the data, and likely to be more conservative in the future.

The Federal Reserve cut interest rates by 0.25% for the third consecutive meeting in December, lowering the target range to 3.50%–3.75%, the lowest level in more than three years. Three members dissented, including one who favored a larger 0.5% cut, as a weakening labor market outweighed lingering inflation concerns. Looking ahead, the Fed’s updated Summary of Economic Projections (SEP) points to a median expectation of just one rate cut in 2026. Officials raised their outlook for real GDP growth to 2.3%, up from 1.8% in September, while maintaining a 4.4% unemployment forecast for next year. Inflation expectations eased, with the 2026 projection lowered from 2.6% to 2.4%.

The Fed’s dual mandate—maximum employment and price stability—faces challenges. Unemployment has risen to a 50‑month high of 4.6% in November, with job growth averaging only 17,000 per month over the past seven months, concentrated almost entirely in health care and social assistance. Jobless claims, however, remain relatively low. On the inflation front, headline CPI slowed to 2.7% year‑over‑year in November from 3.0%, while core CPI fell to a 56‑month low of 2.6%. Wage growth also cooled to a four‑year low of 3.5%, easing price pressures further.

We are maintaining the Fed‑O‑Meter at its current position. With rates reduced by 1.75% over the past 15 months, policy is moving closer to a neutral stance. While Fed officials project only one cut next year, softer inflation data has slightly increased market expectations for an additional move as early as January.