Greetings! What glorious weather we’re having! This week I’m looking at economic trends ahead for the year, what I’m hearing and reading.  And last week, of course, the March national jobs report was released. Overall, the news is modestly positive. The U.S. economy continues to show signs of strength and resilience with stable GDP growth and mild inflation despite ongoing higher interest rates. March marked the 39th straight month of job growth and a much larger gain than forecasted. That said, economic growth – though positive – will remain sluggish until the Fed cuts interest rates. Consumer confidence continues to improve, edging closer to pre-pandemic levels. Prices continue to rise, driven largely by upward pressures on wages.  Minneapolis Federal Reserve Chair Neel Kashkari addressed much of this at a town hall. Listen in! 
 
As I indicated above, Minneapolis Federal Reserve Chair Neel Kashkari spoke at a town hall at the University of Montana earlier this month. Relative to the latter half of 2023, inflation fell much quicker and the labor market remained stronger than the Fed had expected. Both good things. His explanation? Most of the progress in inflation is due to the supply challenges unwinding. People back to work, supply chains improving, service economy reopened, goods economy remaining stable. Commodity prices relatively normalized.  
 
Inflation is running at about 3% right now; the Fed’s target rate is 2%. This is important because the Fed is less inclined to lower interest rates when inflation remains above target. The Fed’s next Federal Open Market Committee (FOMC) meeting is in June. Economists at Morningstar, Reuters, and others are anticipating a modest reduction in the federal reserve rates at that meeting. Others, as reflected in CNBC’s Fed Survey, anticipate that a reduction is less likely given the ongoing growth of the economy. So we’ll have to pay attention to June’s outcomes.
 
As it relates to employment: the national March jobs report recently was released: employers added 303K jobs in March, National unemployment rates fell to 3.8% (from 3.9% in Feb). In many states across the country, unemployment levels have spiked… not so in MN. Minnesota’s current unemployment rate is 2.7% (latest numbers from Feb 2024), lower than the long-term nerm average of 4.73%. How does the Fed balance the unevenness as they consider a national interest rate?  Kashkari’s response: “most businesses that I talk to around our region report that the labor market is not red hot like it was 1-2 years ago. But it’s still a tight labor market, still having to compete to find employees.” Still seeing upward pressure on wages.   
 
As it relates to prices: “stable” price growth, according to the Fed’s preferences, is 2% annual growth. In my talking with employers prices are rising faster than that target rate. Driven largely by upward pressure on wages. Commodity prices have been impacted as well, largely by independent influences such as the invasion of Ukraine and the Israel/Palestine conflict.
 
The big question, then: will interest rates be lowered in June? Morningstar’s latest Economic Outlook details that falling inflation will make this pivot possible in early 2024. Slowing GDB growth (and a slight rise in unemployment, should that happen) in 2024 will add a further reason for the Fed to cut. In his latest testimony to the Congress, Fed Chair Jerome Powell reiterated policy easing would likely be "appropriate" at some point this year. But still sticky inflation and a very resilient labor market could prevent an early rate cut.
 
At this same town hall, Chair Kashkari expressed an understanding of the economy that makes sense to me too: as we anticipate the economic direction, we act in such a way to bring that expectation to reality. Kashkari said, “People’s expectations for the future become self-fulfilling. If all of us believe that inflation is going to be 2%, then we behave in a way that helps lead to inflation being 2%.” The contrary is true as well, and I’ve heard some employers in particular markets (like real estate) use the phrase, “survive till 2025.”  As consumer confidence remains high, I remain hopeful for an interest rate reduction yet this year.
 
 
See you in the trenches,

​B