EXPLAINER-Charting the Fed's economic data flow
March 29 (Reuters) -
The U.S. Federal Reserve held the benchmark interest rate steady in the 5.25% to 5.5% range at its March policy meeting, and officials continued to anticipate approving three quarter-point interest rate cuts by the end of 2024.
Before policymakers begin to ease borrowing costs they say they want to see more data confirming that inflation is returning to their 2% target.
Here's a recap of recent key data watched by the central bank:
INFLATION (PCE released March 29; next release CPI April 10):
The personal consumption expenditures
(PCE) price index
, which the Fed uses to set its 2% inflation target, increased at a 2.5% annual rate in February, up from the 2.4% rate seen in January. Core inflation stripped of volatile food and energy prices rose 2.8%, a slight decline from a January number that was revised up to 2.9%. Neither number is likely to boost confidence among Fed policymakers that inflation will steadily return to their target.
The CPI had risen 3.2% on a year-on-year basis in February, a tick up from 3.1% in the prior month, and higher than analysts expected. The core rate excluding food and energy costs, meanwhile, only edged down to 3.8% from 3.9%, another reminder that the Fed's inflation battle may last longer than anticipated. Rising gasoline and shelter costs contributed the bulk of the CPI increase. Whether the Fed's hoped-for consistent easing in housing costs is imminent remains uncertain.
EMPLOYMENT (Released March 8; next release April 5):
U.S. firms added a larger-than-expected 275,000 jobs in February, though employment gains in the previous two months were revised lower by 167,000. The unemployment rate rose to a two-year high of 3.9% as a rise in the size of the workforce was outweighed by a larger increase in the number of people reporting they were out of work.
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 continues to grow and wage growth eases.
On the wage front, growth eased on a month-to-month basis to just 0.1%, the smallest increase in two years and essentially neutralizing the unexpectedly strong jump in hourly pay the month before.
The annual increase, meanwhile, slowed to 4.3% from 4.4%. While marking further progress, that level is still well above the 3.0%-3.5% range that most policymakers view as consistent with the Fed's 2% inflation target.
JOB OPENINGS (Released March 6; next release April 2)
Fed Chair Jerome Powell keeps 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 potentially available to each person who is without a job but looking for one. The ratio had been falling steadily towards its pre-pandemic level, but has stalled for the last four months at just above 1.4-to-1, higher than the 1.2-to-1 level seen before the health crisis. Other aspects of the survey, like the quits rate, have edged back to pre-pandemic levels.
RETAIL SALES (Released Feb. 15; next release March. 14):
Retail sales fell more than expected in January, dropping 0.8%. They were pulled down by declines in receipts at auto dealerships and gasoline service stations, and consumer spending was also likely weighed down by winter storms. The decline followed a fairly strong performance over the holiday season and could indicate economic growth will slow sharply this quarter.
If it does, it would finally be a sign the aggressive rate hikes Fed policymakers delivered from March 2022 to July 2023 are trimming overall demand for goods and services in what has up to now been a markedly resilient economy.
(Reporting by Dan Burns, Howard Schneider, Ann Saphir and Lindsay Dunsmuir; Editing by Chizu Nomiyama and Andrea Ricci)
