Economic and inflation data normalizing as Fed considers timing of rate cuts

Current Trends

The mighty job engine revved back into higher gear in May, with the gain of 272,000 new jobs topping all forecasts. However, jobs gains were concentrated in a handful of sectors. The unemployment rate ticked up to 4.0 percent, but the labor market remains tight enough for wage growth to climb to a fast 4.1 percent. The sturdy gains in employment and wages provided enough support to prevent a substantial downturn in core consumer spending in May. May’s inflation data were encouraging as price growth for core services less rents was flat on the month, but rents inflation continues to be stubbornly strong. Additional encouraging reports in the coming months could lead to rate cuts beginning as early as September.

Future Outlook

Economic momentum remains buoyant as the year’s halfway mark draws closer. We expect a moderate downshift to unfold in the second half of the year as economic activity normalizes. We look for both hiring and spending to slow in response to elevated interest rates and rising prices. The slowing should be consistent with a soft landing that allows inflation to cool further. That said, the economy remains susceptible to an unexpected shock and should the pivot to easier monetary policy be delayed until late 2024 or later, the odds of a harder economic landing rise particularly for 2025.

Timely data and commentary on employment, financial markets, consumer activity, business performance and inflation, along with dials and charts that provide a scannable at-a-glance view. See our analysis of current economic conditions and our outlook for the months ahead.

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