Checking In On the Federal Reserve

Michael A. Poland, CFA | April 05, 2022

Checking in on the Federal Reserve.

Among other things, Congress asks the Federal Reserve to use its tools to promote price stability and maximum employment. Last week, economic data provided information about both.

Inflation continued to increase

Price stability means ensuring the prices of goods and services increase at a slow and stable pace. Last week, the Bureau of Economic Analysis reported that consumer prices rose 5.4 percent, year-over-year in February, excluding food and energy. When food and energy were included, inflation increased 6.4 percent.

Personal income increased, too, but not quite as quickly as inflation did.

The Fed’s target for inflation is 2 percent. To bring inflation into line, the Fed has begun tightening monetary policy. So far, it has ended asset purchases and started raising the federal funds target rate. Next, it will begin to shrink its balance sheet.^{However, the war in Ukraine and a new COVID-19 outbreak in China are complicating the Fed’s inflation calculations.}

Unemployment remained low

Maximum employment is “…the highest level of employment the economy can sustain without generating unwelcome inflation It describes an economy in which nearly everyone who wants to work has a job, reported Lorena Hernandez Barcena and David Wessel of Brookings.”

Not everyone who wants a job has one, but last week’s employment report from the Bureau of Labor Statistics showed the unemployment rate was quite low at 3.6 percent, overall. When the statistic is viewed by gender and race:

Men have a 3.1 percent unemployment rate with 70.6 percent participation,
Women a 2.8 percent unemployment rate with 57.2 percent participation,
Asian people a 2.8 percent unemployment rate with 64 percent participation,
White people a 3.2 percent unemployment rate with 60.3 percent participation,
Hispanic people a 4.2 percent unemployment rate with 66.4 percent participation, and
Black people a 6.2 percent unemployment rate with 62.1 percent participation.

Major stock indices finished the week mixed, reported Ben Levisohn of Barron’s. The Treasury yield curve inverted last week with the yield for a 10-year Treasury dropping below the yield for a 2-year Treasury.