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) held rates steady at a range of 4.25-4.50% for a second straight meeting in March. The big takeaway from the Fed’s FOMC Meeting was a reduced growth outlook and increase to both inflation and unemployment projections. Tariff uncertainty is giving the Fed pause, but the updated dot plot reaffirms that two rate cuts are the base case for this year. In the post-meeting press conference, however, Chair Powell said the Fed will need to take a wait-and-see approach because of heightened uncertainty.

While tariff risks loom, the Fed is keeping a close eye on labor and inflation data. Nonfarm payrolls strengthened in the final two months of 2024 before cooling to an average of only 138,000 per month in the first two months of this year. The good news is that jobless claims remain at a relatively low level and the unemployment rate is holding steady at 4.1%. Inflationary pressures eased in February, with both CPI and PPI coming in below expectations. The core PCE price index, the Fed’s preferred inflation gauge, is rising at an annualizing pace of 2.4% over the last 6 months, only modestly above the Fed’s 2.0% target.

The Fed is in no hurry to cut interest rates until there is more clarity on tariffs and the path of the economy. A rate cut at the Fed’s next meeting in May is unlikely, but the probability of a June rate cut is 73% as of this writing. We are maintaining the Fed-O-Meter in place for now.