Conflicting Data Makes Rate Decisions a Challenge

April 4, 2022

Conflicting Data Makes Rate Decisions a Challenge Photo

Last Thursday, the Commerce Department reported that inflation, as measured by the Personal Consumption Expenditures Price Index, jumped 6.4% year-over-year in February. Driven in no small part by sharply higher food and gasoline prices, this figure was the largest year-over-year rise since 1982. Excluding food and energy, core inflation increased by 5.4%. This rise was driven by robust demand/supply shortages and does not reflect the impact of Russia’s invasion of Ukraine, which began Feb. 24, on the supply chain.

On Friday, the Labor Department reported that the U.S. labor market strengthened in March, adding 431,000 nonfarm jobs. This represented the 11th straight month of job gains above 400,000 — the longest streak on record. Labor demand was broad-based, with leisure and hospitality leading job gains, followed by professional and business services, retail and manufacturing. 

While still below its February 2020 level of 63.4%, the labor-force participation rate remained relatively flat, increasing from 62.3% to 62.4%. This measure troughed in April 2020 at 60.2%. Meanwhile, the unemployment rate fell from 3.8% to 3.6% — slightly above its 50-year low of 3.5% that was reached in February 2020, just before the pandemic took hold.

These improvements in the employment picture have come as companies pushed forward their normal spring hiring due to persistent labor shortages, and people felt encouraged to seek jobs as wages increased and new COVID-19 cases fell from more than 1 million a day in January to the current daily average of less than 30,000 a day. While workers did see wage gains as a result of the labor shortages, those increases will likely slow as more people return to work. 

Although the Federal Open Market Committee did not have the benefit of recently released data during its meeting on March 15-16, the minutes (set to be released this week) will offer valuable insight into its commitment to and/or plan for continuing to raise rates over the next several quarters.    

Tags: PCE | Inflation | FOMC | Labor force participation | Labor market | Nonfarm Jobs Report

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