The economic outlook can be summed up in five words: Everything’s great, except what isn’t.
We’ll lead with the “everything’s great” part, as seen through the filter of the Federal Reserve Board. As Fed Chair Janet Yellen reminds us after every meeting, the Fed has two goals—lowering the unemployment rate and stabilizing prices.
The Fed’s target unemployment rate is 4.7% to 5.8% and, if you believe the U.S. Bureau of Labor Statistics (see below re: why you shouldn’t), the Fed has accomplished that goal, as the current rate is at an eight-year low of 4.9%. The Fed’s target inflation rate is 2% and, depending on how you measure inflation, it’s close to that number.
“The Fed’s preferred measure, the personal consumption expenditures price index, rose 1.3% in January from the previous year, and so-called core inflation—which excludes volatile food and energy prices—was 1.7%,” The Wall Street Journal reported. “The consumer-price index rose 1% in February from a year earlier, but core CPI was up 2.3% for the year, the largest 12-month increase since May 2012.”
So the Fed could have logically declared its mission accomplished and begun to gradually increase interest rates, as was expected after December’s initial miniscule rate increase. So why was the vote at last wek’s meeting 10-1 against a rate hike? (more…)