How You Might Look at Recent Data

Contrary to most forecasts, including my own, the economy finished 2023 strong. But early 2024 data has been a little less encouraging. It raises the question of whether we are seeing a real shift in the economic outlook, or merely a bump along the way. We are all looking at the same data, but it is easy to come away with different conclusions. What do I see? On demand, the historic strength of today’s labor market makes a strong case that we are not in a recession today, but I have to believe all this tightening will eventually slow the economy further. On inflation, while I do hear price-setters increasingly convinced that the era of significant pricing power is behind them, the inflationary experience of the last two years has surely given them more courage to use price as a lever. I’m still looking for the slowing in reported inflation to sustain and broaden. In the interim, I think it is smart for the Fed to take our time. No one wants inflation to reemerge. We have time for the clouds to clear before beginning the process of toggling rates down.