I've kept an eye on the permanent job losers series. It was basically unchanged in May at 1.92 million, or 1.12% of the labor force. It's been creeping up but *very* gently over the last couple years.

A thread with a few other observations from the May employment report follows. The index of aggregate weekly payrolls is a good monthly proxy for nominal income growth and correlates well with nominal GDP growth.

It was up 5% on the year in May and has held in a range over the last year that is back to where it was from 2018-19

A snapshot of inflation as of February 2025

A year ago, the prospect that housing might not meaningfully disinflate spooked markets. But those fears were dismissed as the year went on. Housing has meaningfully contributed to the inflation slowdown, as expected since late '22. What about core nonhousing services, the bucket Powell called out at the end of '22, when the Fed was still worried about too-high wages?

(Note: Powell was calling out a different measure, the PCE, which is constructed differently)

It's also coming down, though more unevenly.

From the University of Michigan consumer survey:

"Year-ahead inflation expectations jumped up from 3.3% last month to 4.3% this month, the highest reading since November 2023 and marking two consecutive months of unusually large increases. This is only the fifth time in 14 years we have seen such a large one-month rise (one percentage point or more) in year-ahead inflation expectations." Yes, caveats apply:

1) The increase in expectations hews to partisan lines, as Democrats generally think inflation will be much higher than it has been and as those who expect a big increase in tariffs also think inflation will be higher.

2) The consumer survey panel switched last year to online surveys instead of phone, which creates a structural break in the time series

3) The survey has picked up a big increase in 1-year-ahead expectations two years ago that wasn't captured in others (like the FRBNY consumer survey). The FRBNY survey data for January hasn't been published yet.

But this is an unusually large increase for a period where gas prices haven't made a big move, highlighting the way tariff risks could complicate the outlook for price-setting in 2025.

Q4 data in the employment cost index shows a cooling labor market

Wages and salaries for private sector workers ex-incentive paid occupations rose 3.8% on the year, the lowest since '21

The QoQ increase (+0.5%) was the mildest for a Q4 since 2020
Total compensation for all private-industry workers held steady in Q4, rising 3.6% from a year earlier.

Using a three-month average, payroll growth for August was revised up to +140K from +116K, and payroll growth in September was +186K

https://twitter.com/NickTimiraos/status/1842180602944012662

The unemployment rate dropped back to 4.1% (to the second decimal-stans out there, 4.05%) back to where it was in June, before the July report that triggered the Sahm rule and increased alarm about labor-market softness.

Powell in the Q&A at NABE: The upward revisions of GDI were "quite interesting"

That GDI wasn't as low as once thought "removes a downside risk to the economy"

The upward revision to the savings rate does the same thing. "That suggests spending can continue at a healthy level" Powell: There's still an unresolved tension between consumption data, which has been good, and the employment data, which has shown a cooling trend of late.

The labor market may give a better real-time picture. GDP doesn't predict downturns as well as labor data.

A cheat sheet for the July Fed meeting

• The big question is where the committee and chair sets the bar for a September cut.

• The cleanest signal probably comes from Powell's press conference because it's much easier to convey nuance there, but...
wsj.com/economy/centra… • Don't sleep on the FOMC statement. It's important.

While Powell's opening press conference statement likely aims to reflect the committee's views, the policy statement is what actually gets workshopped and voted on.

Hints could be dropped in any of the first 3 paragraphs

The ECI rose on a sequential basis.

Private sector compensation growth was +1.1% in Q1 vs +0.9% in Q4

Because the Q1 '24 gain was slightly less than the Q1 '23 increase (+1.2%), the year-over-year rate of compensation growth edged down to slightly less than 4.1%

The ECI is seen inside the Fed as the highest-quality measure of compensation growth

Wages and salaries for private sector workers excluding incentive paid occupations was +1.3% in Q1 (vs +0.7% in Q4 2023 and +1.5% in Q1 2023)

The Y/Y rate fell to 4.2% from 4.3% in Q4

The Fed is set to retire its tightening bias at its policy meeting this week.

Officials have a first-class problem—inflation fell faster than they expected—but it poses a conundrum nevertheless: How soon and fast do you dial back restrictive policy?

wsj.com/economy/centra… There's a case for delaying cuts until mid-year or beyond that goes like this: If this is really such a restrictive policy, why is the economy doing so well?

Yes, real rates have been rising, but real incomes are also picking up as inflation comes down.

Fed governor Chris Waller: Rate cuts are coming into view but the process should be “carefully calibrated and not rushed.”

As long as growth is fine, “I see no reason to move as quickly or cut as rapidly” as the Fed has in past cutting cycles.

This is a clear pivot from Waller: “From now on, the setting of policy needs to proceed with more caution to avoid over-tightening”

But but but … the Fed’s goal is sustainable 2% inflation. “That goal cannot be achieved for just a moment in time.”

Powell's speech at the IMF was interrupted by protesters who want the Fed to use its bank-supervision authorities to take steps that would try to raise the cost of banks to finance fossil fuel activities

During the Q&A, Powell explained his thinking on resisting such pressures In short, the Fed's autonomy (often called "independence") to manage demand (by setting rates) isn't set in stone.

It's an institutional arrangement: Powers that've been delegated by Congress could be summarily revoked.

Powell: Inflation isn't coming down as swiftly as anticipated, but it will take time for service-sector inflation to move lower.

"The bottom line is that policy hasn’t been restrictive enough for long enough to see those effects." Powell: There's been no decision to move to an every-other-meeting rate hike pattern.

"It may work out that way; it may not work out that way."

"I wouldn't take moving at consecutive meetings off the table at all."

Former Dallas Fed chief Rob Kaplan thinks we're in the early stage of banking woes.

He gave a recent interview that is striking (and I relied quite a bit in this column) because it hits different notes compared to recent Fed speak teeing up a May hike. wsj.com/articles/why-t… Kaplan says he wouldn't have hiked in March—and wouldn't do so in May, either.

To him, taking fed-funds from 4.75% to 5.25% doesn't do as much for inflation as the potential harm from overshooting because he thinks the inflation fight will be measured in years, not months.

U.S. bank deposits declined $126 billion for the week ending March 22 from the previous week.

Small banks saw net *inflows* of $6 billion, while large banks saw $90 billion in *outflows*

But do note there have been big revisions to the previous week federalreserve.gov/releases/h8/cu… For the week ending March 15, small banks saw deposit outflows of $196 billion, up from the initially reported -$120 billion

Total deposits for the March 8-15 period are now reported to have declined $175 billion, up from the initially reported -$98 billion

FDIC Chair Martin Gruenberg explains the decision to make the systemic risk determination to backstop all deposits at SVB and Signature Bank fdic.gov/news/speeches/… Gruenberg: The ten largest deposit accounts at SVB held $13.3 billion in the aggregate.

The Fed faces one of its toughest calls in years: whether to raise rates again to fight stubbornly high inflation or take a timeout amid the most intense banking crisis since 2008.

“It’s going to be a tough decision with very tricky communications." wsj.com/articles/feder… A few considerations: Has the outlook changed materially?

Central banks have framed a general principle of using separate tools for separate jobs.

NY Fed President John Williams said last fall: “Monetary policy should not try to be a jack of all trades and a master of none.”

How should the government treat uninsured depositors after a bank run?

It's a question Jay Powell faced as an assistant Treasury secretary in January 1991, and it's recounted in my book (which is worth reading if you're interested in how Powell operates) nicktimiraos.com/book Fed governor John LaWare argued for saving depositors, opposing Powell’s boss.

“You're the government, and you can do whatever you want, but here's what we think will happen if we haircut uninsured depositors. There will be a run on every American bank when they open Monday.”

Senate Banking Committee Chair Sherrod Brown (D., Ohio) began the Fed hearing warning against overusing monetary policy to address high inflation, but he is using his five-minute Q&A with Powell to address other issues, such as regulatory policy and crypto assets. The second Democratic lawmaker to question Powell, Sen. Bob Menendez, focuses initially on the debt limit and the Biden administration's focus on diversity in central bank nominees. Monetary policy comes up briefly at the end.

FOMC Minutes: "Almost all" thought 25 bps was appropriate but a "few" favored or would have also agreed to a larger 50 bps increase. FOMC Minutes: "Almost all participants observed that slowing the pace of rate increases at the current juncture would allow for appropriate risk management."

St. Louis Fed President Jim Bullard to reporters this afternoon:

• He would have preferred raising rates by 50 bps this month and to get to a funds rate of 5¼-5½% as quickly as possible.

"I don't see much merit in delaying our approach to that level." wsj.com/articles/feds-… • Bullard said he sees core PCE inflation coming down to 3.7% this year.

"My overall judgment is it will be a long battle against inflation."

Behind the bond market's disconnect from the Fed on the interest-rate outlook:

The Fed thinks inflation won't come down as quickly as do investors, who are factoring in a greater probability of a sharp downturn that brings inflation down

w/@akaneotani
wsj.com/articles/stock… The Fed “can learn from what the market is thinking and saying,” said William English, who was once the top adviser on monetary policy at the central bank.

“That’s information for policy makers. It isn’t something to be particularly feared.”