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 (Fed) has paused rate cuts for now, and the path of unemployment and inflation will determine how long this pause will last. While Fed officials are monitoring these key indicators closely, they have emphasized that patience is needed to fully assess the impact of the 1.75% in rate cuts implemented since September 2024. Kevin Warsh has been named the next Fed Chair nominee, though uncertainty remains around whether he will assume the role when Jerome Powell steps down as Chair in May, given potential challenges with Senate approval amid ongoing Justice Department scrutiny of Powell. Regardless, the Fed’s patient but dovish stance is likely to continue.
Recent economic data reflected progress towards the Fed’s dual mandate of maintaining stable prices and supporting maximum employment. The labor market saw a pickup in hiring in January, with job growth increasing to a 13-month high of 130,000. It was a welcome improvement after last year’s subdued pace of hiring. Job growth averaged just 15,000 per month in 2025. Furthermore, the unemployment rate edged lower to 4.3%, and jobless claims remain at relatively low levels. Inflation softened in January, with headline CPI rising 0.2% for the month, while Core CPI advanced 0.3% month-over-month but slowed to a 2.5% annual rate, the lowest since March 2021. These trends are encouraging for Fed officials.
The Fed is likely to hold rates steady for the next meetings, though it remains likely that interest rates will be reduced further this year. Inflationary pressures have cooled and the labor market is showing signs of stabilization. We are keeping the Fed‑O‑Meter at its current position.
