Fed-O-Meter

Our Fed-O-Meter gives you a monthly snapshot of where we see the Fed moving on monetary policy. Dive deeper by reviewing the numbers behind the needle and our summary analysis below.

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Higher Chance of
More Conservative
Fed Policy
Higher Chance of
More Aggressive
Fed Policy
Research & Insights Fed-O-Meter

Summary Analysis

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) concluded the September FOMC Meeting by holding interest rates steady at a range of 5.25% to 5.50%. This was expected. There was a slight plot twist in the Dot Plot, which shows the median projected interest rate at year-end through 2026. The Fed’s median projected fed funds rate at the end of 2024 increased from 4.6% in the June Dot Plot to 5.1%. The 2025 median projection rose from 3.4% to 3.9%. While interest rate cuts are still projected in the coming years, the key takeaway is the Fed thinks rates will be higher than previously forecasted for a longer period of time.

Though current forecasts from the Fed imply fewer rate cuts than previously expected, most of the key economic data is trending in the right direction from the Fed’s perspective. The labor market is cooling, but not contracting, and inflationary pressures are easing. The unemployment rate increased slightly in August to 3.8% because of higher labor force participation, though unemployment has been under 4.0% each of the last 19 months. The average pace of job growth is 194,000 over the last six months, slightly ahead of the 2018-19 average of 177,000. Job openings are also falling towards pre-pandemic levels. The cumulative effect is a stabilizing labor market, with cooling wage pressures. In August 2022, average hourly earnings increased 5.4% year-over-year. This August, hourly wage growth slowed to 4.3% year-over-year. On the inflation front, core CPI, a measure of consumer prices that excludes volatile categories food and energy, eased to a 23-month low of 4.3%. year-over- year, but the 3-month annualized pace of inflation is just 2.4%. Rising energy prices impacted headline CPI inflation, which accelerated to 3.7% year-over-year in August, from 3.2% the month prior. While the disinflationary path continues, price pressures won’t ease in unison, and the pace of inflation towards the Fed’s long-term goal of 2.0% won’t be in a straight line.

In light of the overall disinflationary trend and moderating labor market conditions, we are maintaining the Fed-O-Meter dial in its current position. We anticipate the Fed will keep rates steady through at least the end of this year. Although the Fed is still signaling the potential for another hike in 2023, their outlook for 2024 indicates that rate cuts will be on the table.