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Explainer-Charting the Fed's economic data flow
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Explainer-Charting the Fed's economic data flow
May 3, 2024 6:42 AM

(Reuters) -The U.S. Federal Reserve held its benchmark overnight interest rate steady in the 5.25%-5.50% range at the end of a two-day meeting on Wednesday.

Policymakers remain uncertain about the timing of a first rate cut, and say they want to see more data confirming that inflation will fall, even if slowly.

Among the key statistics they are watching:

EMPLOYMENT (Released May 3; next release June 7):

U.S. firms added 175,000 jobs in April, fewer than expected and a rare drop below the 183,000 average pace seen before the pandemic. Average job growth in recent months remains above 240,000, and the unemployment rate in April, at 3.9%, remained below 4% for the 27th straight month.

But while the figure remains healthy, the decline will be welcomed by Fed officials as evidence the job market is coming into better balance, countering a run of recent data that prompted talk of a reaccelerating economy.

Fed officials have become more comfortable with the idea that continued strong job growth could still allow inflation to fall, especially if the supply of labor keeps growing and wage growth eases. Both did in April: Workforce growth was a modest 87,000. But the annual pace of wage growth fell to 3.9%, the slowest since June 2021 and edging closer to the 3.0%-3.5% range that most policymakers view as consistent with the Fed's inflation target.

JOB OPENINGS (Released May 1, next release June 4)

Fed Chair Jerome Powell has kept a close eye on the U.S. Labor Department's Job Openings and Labor Turnover Survey (JOLTS) for information on the imbalance between labor supply and demand, and particularly on the number of job openings available to each person who is without a job but looking for one. The ratio fell in March to 1.32, the lowest level since the summer of 2021 and nearing the 1.2-to-1 level seen before the health crisis.

Other aspects of the survey, like the quits rate, also have edged back to pre-pandemic levels in what Fed officials view as a balance between supply and demand emerging in the labor market overall.

INFLATION (PCE released April 26; next release CPI May 15):

The personal consumption expenditures (PCE) price index, which the Fed uses to set its inflation target, accelerated to a 2.7% annual rate in March, up from 2.5% in the prior month. Core inflation stripped of volatile food and energy prices rose 2.8%, matching the rise in February.

Neither number is likely to boost confidence among Fed policymakers that inflation will steadily return to the central bank's target. But neither will it set them back from thinking the jump in inflation early this year may just have been a "bump" on the way to lower price pressures. The March numbers had already been anticipated by Powell in earlier remarks, and the release of the data matched his expectations.

The Consumer Price Index (CPI) accelerated in March to a 3.5% annual rate versus 3.2% in February, a blow to Fed officials hoping for signs inflation would resume its decline after progress stalled at the start of the year. Core prices, excluding food and energy costs, rose at a 3.8% annual rate, the same as in the month before.

The CPI numbers led investors to push back to September their expectations for an initial Fed rate cut, and they now see only two quarter-percentage-point cuts this year. Rising gasoline and shelter costs again contributed the bulk of the CPI increase, defying hopes among some policymakers that housing inflation is on the verge of a steady decline.

RETAIL SALES (Released April 15; next release May 15):

Consumer spending rose more than anticipated in March, and upward revisions to earlier data again defied expectations that stressed households would pull back and slow the economy. Data for March showed retail sales rose 0.7%, more than twice the figure projected by economists in a recent Reuters poll.

The unexpected jump is likely to add to already growing sentiment among Fed officials that there is no urgent need to cut rates in an economy that is showing little sign of buckling under the pressure of current credit conditions.

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