S&P 500 falls on pressure from retail stocks, weak jobless claims
Investing.com -- Federal Reserve Governor Adriana Kugler recently addressed the Heller-Hurwicz Economics Institute at the University of Minnesota, discussing the transmission of the Fed’s monetary policy and providing her perspective on the economic outlook.
The U.S. economy expanded by 2.5% last year, and early indicators this year show robust figures. March retail sales demonstrated sturdy consumption, with positive revisions for January and February. However, household sentiment surveys from the University of Michigan, Conference Board, and Morning Consult have indicated some softness, largely due to trade policy concerns.
The labor market remains strong, with the average monthly job addition in the first quarter being 152,000, compared to an average of 168,000 per month last year. The unemployment rate was slightly up last month at 4.2%, but remains low overall. Initial jobless claims have remained stable at low levels, indicating a balanced labor market.
Inflation has been above the 2% target, with the 12-month change in the personal consumption expenditures (PCE) price index estimated at 2.3% last month and 2.6% for the core categories, excluding food and energy. Kugler also monitors two subcategories of inflation: core goods and nonhousing market-based services. Goods inflation was negative for most of 2024 but increased to 0.4% in January and February, and decreased to 0.1% in March. Nonhousing market services inflation remained high through March, at an estimated 3.4%.
Kugler is carefully monitoring incoming data and the cumulative effects of policies in four areas: trade, immigration, fiscal policy, and regulation. She supports maintaining the current policy rate as long as the upside risks to inflation continue, while economic activity and employment remain stable.
Understanding the transmission of monetary policy starts with understanding how the Federal Reserve uses its policy tools. The Federal Open Market Committee (FOMC) adjusts the target range for the federal funds rate, which is the rate that banks pay for overnight borrowing. Adjustments to the federal funds rate affect a multitude of financial conditions faced by consumers and businesses.
Kugler also discussed the timing with which monetary policy affects the macroeconomy, noting that it takes about one to two years for the maximum effects of policy to be observed in economic activity and inflation. She also considered whether the transmission of monetary policy has been equally impactful during different points in time, with evidence indicating that contractionary monetary shocks may generally decrease economic activity more strongly than expansionary shocks increase it.
In conclusion, Kugler noted that she is closely studying how the decisions the FOMC makes are transmitted through the economy, and is guided by how best to achieve the dual-mandate goals of maximum employment and stable prices.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.