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) cut interest rates by 0.25% at the November FOMC Meeting, after cutting rates by a larger 0.5% in September. The target fed funds rate is down to a target range of 4.50% to 4.75%. An additional 0.25% rate cut is widely expected when the Fed reconvenes in December, and the latest trends in the data point in that direction.

The data is still showing inflation moderating and the labor market cooling off. The core consumer price index (CPI), which excludes food and energy, has increased 3.3% over the last year. However, the annualized increase over the last six months has slowed to 2.6%. There is a similar trend in headline inflation. Shelter inflation, on the other hand, is still rising at a strong pace of 4.9% year-over-year. The labor market continues to soften as job growth is decelerating. October’s tepid increase of 12,000 jobs was impacted by two hurricanes and a large manufacturing strike, but job growth was already trending lower throughout the year. The good news is that unemployment has stabilized, with the unemployment rate settling at 4.1% last month.

The data dependent Fed is likely to cut interest rates at the next FOMC Meeting in December. Interest rates are still at levels that are restrictive for the housing market. Furthermore, the labor market and price pressures are both cooling this year. We are maintaining the Fed-O-Meter in its current position.