ARLINGTON, Va.–With the U.S. economy continuing to prove to be “more resilient than expected” even in the face of high inflation, a NAFCU economist said data to be released this week should offer a strong signal on where the Fed is headed with rates.
In the meeting minutes it has released, the Federal Open Markets Committee (FOMC) has remarked that the labor market remains strong, with both ample job openings and increases in average wages, but a lack of growing momentum can also be seen.
“What we've begun to see in recent economic data is that the adrenaline is starting to wear off,” NAFCU Economic Noah Yosif said. “The employment situation that came out essentially showed that the number of jobs that were available reached (revealed) very small increases. In addition, average weekly wage growth also showed very tepid gains. In addition to that we're also starting to see these savings we've accumulated during the pandemic are expected to basically run out by the fourth quarter or the beginning of the first quarter of next year. So, that is also starting to put some pressure on consumer spending.”
For example, Yosif pointed to decreases in card spending.
Fed Needs to be ‘Attuned’
“With monetary policy, the Federal Reserve is really going to be attuned to the pace of this slowing in the economy,” said Yosif. “If the pace of the slowdown is too quick, then that could mean the Federal Reserve might have to think about how long it can keep interest rates at their current level given the fact that the economy simply can't withstand that same amount of pressure as it once did. However, conversely, if there is there is not enough of a slowdown in the economy then that could also mean that inflation remains persistent. (The Fed) will also need to think about how it can tailor its policy, so to speak, so that inflation is still on track to reach that 2% goal.”
What the FOMC is thinking will be more apparent when it releases its latest minutes on Wednesday, Yosif added.