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 (Fed) appears on track for a second consecutive rate cut at the upcoming FOMC Meeting in late October. Minutes from the September meeting revealed that most officials see it as appropriate to move rates lower, citing rising downside risks to employment. However, the Fed’s data dependent approach may be challenged by the government shutdown.

Key economic reports have been delayed, leaving Fed officials with limited visibility into current conditions. Data through August showed persistent above-target inflation and a cooling labor market. Weekly jobless claims, which were available the week before the shutdown, indicated that layoffs remained low through September. Private payroll data from ADP showed a decline of 32,000 jobs in September, the third decline in the prior four months. While the ADP job figures aren’t always aligned with BLS figures, they typically follow the same trend. Meanwhile, the ISM Services and Manufacturing PMIs signaled contraction in employment indices in September, but at a lesser degree than in August. The prices paid index showed that price pressures are elevated, but there are signs of easing.

The overall trend of above-trend inflation and softening job growth remains in place. We are keeping the Fed-O-Meter in its current position, anticipating a rate cut at the end of October.