Economy in Brief

The financial market response to this week’s decision by the Fed to lower its policy rate by 50 basis points suggests that investors are uncertain about what that decision might mean for the economic outlook. Longer-term US bond yields, for example, climbed a little (chart 1) while stock markets ended lower on the day though have since re-traced those losses. This uncertainty arguably underscores the great difficulty in calibrating monetary policy and in communicating subsequent intentions at present. As we discuss below, investors remain highly sensitive to incoming data, partly because monetary policy calibration has been equally data-dependent. And the fact that both growth and inflation data have been consistently undershooting expectations has amplified concerns that US (and global) monetary policy has remained too tight for too long (see charts 2 and 3). Still, there are currently very few macroeconomic indicators signalling a high likelihood of an imminent US recession. Equally—and more concerning—latest wage data suggest that labour markets could still be tight (charts 4 and 5). Beyond these cyclical challenges, a debate about where growth and inflation will ultimately stabilize has also been active, with significant uncertainty about what might be considered a “normal” level for nominal and real interest rates. Factors such as ageing demographics, climate change and the energy transition, together with ongoing geopolitical uncertainty are shaping that debate. But how trend productivity growth now evolves will also be key to this and crucial to monitor in the period ahead as well (chart 6).

• Component movement in leading index is mixed.
• Coincident indicators rebound.
• Lagging indicators hold steady.

• Second lowest level since October 2010.
• Sales fell in the South, West, and Northeast, while the Midwest registered no change.
• The median price fell for the second consecutive month, but from a record high in June.

• Current General Activity Index remains down sharply in Q3.
• New orders & shipments fall, but employment improves.
• Inflation indicators jump.

• Second largest deficit on record.
• Goods deficit key factor, widening by more than $20 billion.
• Services surplus essentially unchanged.

• Initial claims declined by 12,000 in the week ended September 14.
• Continued claims declined by 14,000 in the week ended September 7.
• Insured unemployment rate still at 1.2%.

• Funds rate target range was lowered to 4.75% to 5.0% after being held steady at 5.25% to 5.5% since August 2023.
• Fed maintains focus on inflation reduction.
• Moderation of labor market strength & progress toward 2% inflation goal again is noted.