Looking at 'the data' before Fed meets

When will the Fed cut interest rates?

When the data says so.

In June, the last time the Federal Reserve policymaking committee met, Fed chief Jerome Powell used the word "data" 30 times and underscored its importance in his news conference.

"We will need to see more good data to bolster our confidence that inflation is moving sustainably toward 2%," the Fed's inflation target, he said.

When the committee's final two-day meeting of the summer concludes Wednesday afternoon, we'll hear Powell's latest thoughts on "the data."

Investors who trade short-term interest rate futures seem pretty certain the various inflation measures will fall short. But the CME FedWatch tool shows a nearly 90% probability that the Fed will reduce interest rates at its next meeting in September, by a quarter-point, to a range of 5% to 5.25%.

Higher interest rates are intended to slow the economy and decrease inflation. A strong gross domestic product reading last week and continued job growth could give the Fed room to leave interest rates unchanged.

Even though those high interest rates are making borrowing more expensive for businesses, they have continued to add jobs. However, the growth might be slowing. The latest employment report showed an increase of 206,000 workers in June, but in the same report, the Bureau of Labor Statistics revised the April and May job gains down by 111,000. All three months were well below the 10-year median job growth number of 243,000.

We'll know more on Friday when the Bureau of Labor Statistics releases the July jobs report.

How's the economy doing?

Jobs are only part of the stew of economic figures the Fed will be discussing on Tuesday and Wednesday. We've collected eight other key data points that offer insights into the economy's direction and consumer sentiment.

The unemployment rate rose to 4.1% in June, ticking up from 4% in May. The monthly number represents the percentage of people who are unemployed and looking for work. The latest unemployment number will be released on Friday, too.

The unemployment rate is rising slowly, which could suggest employers are pulling back on hiring. Still, the rate remains well below the 10-year monthly median of 4.2%.

The U.S. produced $22.9trillion of goods on an inflation-adjusted annualized basis in the second quarter, according to the Bureau of Labor statistics. That pushed up GDP by 2.8% from the first quarter.

The economy grew unexpectedly fast in the second quarter after a tepid first quarter. Some speculated after the first-quarter reading that high interest rates were starting to weigh on businesses and consumers.

Inflation, a sustained increase in prices throughout the economy, has been well above the 10-year median of 2.1% for more than three years. The Fed policymakers say they prefer a low, stable inflation rate, so they can "make sound decisions regarding saving, borrowing and investment."

Inflation has fallen significantly in the past two years but remains elevated. In June, the U.S. inflation rate for the year as measured by the consumer price index ticked down to 3% from 3.3% in May. The July CPI reading will be released Aug. 14.

U.S. consumers account for $7 of every $10 spent in the U.S. economy. Retail sales' median monthly increase has been 0.3% for the past 10 years. That doesn't sound like much – until you consider a 0.1% increase in November amounted to an extra $730million of spending.

As the primary engine of the U.S. economy, we consumers bought $704.3billion worth of stuff on a seasonally adjusted basis in June. That was unchanged from May. But the report had a important revision: May's retail sales were revised up by 0.2 percentage points to the 10-year average.

Gasoline purchases aren't a large part of most people's budgets, but it's hard not to see the big numbers outside every station and have some emotional reaction to their swings. That can have a psychological impact on our spending. One report showed a recent improvement in consumer sentiment closely correlated with lower gas prices.

We're in the midst of summer driving season, when gasoline prices typically peak, but a gallon of regular gas sells for 20 cents less than it did in late April. NerdWallet points out that lower-cost gasoline this summer has helped hold down inflation.

According to the University of Michigan, consumer sentiment had been rising haltingly since May 2023 but tumbled in May 2024 and was nearly unchanged in June.

Joanne Hsu, director of the surveys of consumers at University of Michigan, wrote in the June report that sentiment "remains guarded as high prices continue to drag down attitudes, particularly for those with lower incomes."

While the Fed's interest rate decisions don't directly affect mortgage rates, they ripple through the economy and have made the math more difficult for homebuyers. A 30-year, fixed-rate mortgage averaged 3% in 2021. Mortgage rates have dipped to 6.8% since May but remain well above the 10-year median of 3.95%, according to Freddie Mac.

A new $400,000 mortgage at 6.8% costs a buyer $915 more per month than mortgages at 3%, according to Bankrate's mortgage calculator.

The National Association of Realtors reports each month's sales at a seasonally adjusted annual rate. Annual home sales peaked in 2005 at 7.08million units. In 2023, that number fell to 4.09million units – lower than sales during any year following the financial crisis. June's sales of 3.89million were the second-lowest since the Fed started raising interest rates.

Not surprisingly, as mortgage rates have risen, sales of existing homes have tumbled. At the same time, average home prices continue to hit new highs because fewer homes are on the market. Speculation has been that some homeowners are unwilling to part with their low-rate mortgages.