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’s (Fed) March FOMC Meeting concluded with rates holding steady at a range of 5.25%-5.50%. The key takeaway was that the median Dot Plot rate projection for this year implied a median projection of three rate cuts, matching December’s projection. The Fed is still signaling three 2024 rate cuts despite higher-than-expected inflation data in the first two months of the year. Furthermore, the Fed slightly increased their 2024 core PCE inflation projection to 2.6% (from 2.4%) and GDP projection to 2.1% (from 1.4% previously). Inflation and growth expectations for this year increased, yet the Fed kept their projection of three 2024 rate cuts.

How soon the Fed begins rate cuts is data dependent. Headline CPI is up 3.2% Y/Y, but the last few months saw a rise in inflationary pressures. Over the last three months, CPI inflation increased at a 4.0% annualized pace. Core CPI inflation slowed to 3.8% Y/Y in February, but the annualized pace over the last three months climbed to 4.2%. Excluding shelter, inflation is up just 1.8% Y/Y. Shelter inflation is slowly easing, but it’s up 5.8% Y/Y. Shelter is 36% of CPI, so the pace of shelter disinflation could influence the timing and pace of rate cuts. The labor market remains healthy. Monthly job growth averaged 265,000 per month over the last three months (through February), while unemployment claims are still at low levels. The unemployment rate climbed to 3.9% in February, although the increase was driven by a rise in unemployment for 16-24 years. Prime-age (25-54) unemployment held steady at 3.3%. Furthermore, wage growth decelerated, and this trend is likely to remain in place because of declining job openings and a falling quit rate.

The Fed’s rate cut pause is likely to continue at least through the next Fed meeting or two. Resiliency from the labor market and overall economy is providing the Fed some patience to get a better sense of the recent uptick in inflation readings. That said, the next key decision for the Fed is most likely a rate cut. We might not have to wait much longer based on the latest CME FedWatch rate odds. As of this writing, there is a 75% probability of a June rate cut. We are maintaining the Fed-O-Meter in the current position.