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Explainer: Parsing the Fed“s path to a pause


Federal Reserve Chairman Jerome Powell departs after holding a news conference after the release of U.S. Fed policy decision on interest rates, in Washington, U.S., May 3, 2023. REUTERS/Kevin Lamarque/File Photo

U.S. Federal Reserve officials may still be fighting a war against inflation, but they nevertheless opened the door at their May meeting to the possibility that interest rates won’t have to rise any further from the current 5% to 5.25% range.

They will now have until June 14 to choose whether to walk through that door, with key data on jobs, inflation, credit conditions and the health of the banking system over the next six weeks informing the decision, public comments from Fed officials shaping the debate, and analysts already looking for clues.

An important first few will come Friday with the release of employment data covering job growth, wages and the unemployment rate for April, and comments on the economy and monetary policy from St. Louis Fed President James Bullard and Minneapolis Fed President Neel Kashkari at the Economic Club of Minnesota.

Investors at this point broadly expect the Fed to remain on hold at its June meeting, and Vincent Reinhart, chief economist at Dreyfus and Mellon and a former top Fed staffer, said he feels there would need to be a “trifecta of data” for the Fed to hike again – strong overall demand seen in things like retail sales reports, continued tight resource use seen in employment reports, and evidence of “stubborn” inflation not falling as anticipated.

“If they got that they could do another quarter point,” at the June meeting, he said.

The path to the pause will roll out in marquee monthly data on the key topics of jobs and prices, but also weekly series tracking emerging concerns about the financial industry.

Here’s a guide to what’s ahead:

JOBS: Next release May 5

The data calendar will let the Fed receive two monthly jobs reports, covering April and May, before its June 13-14 policy meeting. Employment gains, from the Fed’s perspective, have been unsustainably strong, with officials looking for the pace of monthly job creation to slow or even turn negative, and “softness” in the labor market seen as part of what’s needed to lower inflation.

INFLATION: Next release May 10

The Fed also gets a bonus month of information on prices this time with Consumer Price Index data for April and May in hand for the next Federal Open Market Committee meeting, though the May report will only arrive on the day the meeting starts. For the Personal Consumption Expenditures price index, the measure used to set the Fed’s 2% inflation target, only the April report will be available. But the two track each other to some degree, and the Fed will look for confirmation in all of the reports that the pace of price increases is continuing to slow, even if the progress is tepid. All key price indexes are currently increasing at more than double the Fed’s target.

RETAIL SALES: Next release May 16

Fed officials at this point give a textbook economics explanation for inflation, blaming it on a mismatch between supply and demand. Regardless of which side of the equation is more to blame, monetary policy at least in the short run works to curb spending. Officials will watch things like retail sales closely to see if households are pulling back, which should force companies to become more competitive on price.

JOB OPENINGS: Next release May 31

The Job Openings and Labor Turnover Survey, or JOLTS, became an important series for the Fed during the pandemic for its insight on labor market dynamics, including the rate at which workers are quitting – a sign of employee leverage and tight markets – and the number of open jobs – a sign of company demand for employees. Fed Chair Jerome Powell paid particular attention to last year’s record high of two open jobs for each unemployed jobseeker, a pandemic-era peculiarity that has been easing.

BANK DATA: Weekly releases Thursday and Friday

To some degree the Fed wants credit to become more expensive and less available. That’s how increases in its benchmark policy interest rate influence economic activity. But it doesn’t want financial conditions to tighten more than necessary, and recent bank failures threatened both broader stress in the industry and a worse-than-anticipated credit crunch. Weekly data on bank lending to customers, and Fed lending to banks, will be watched for signs of instability or overly restrictive lending.


The Fed’s internal communications rules set a “blackout” period around each policy meeting. The curtain of silence around the May meeting lifts on Friday, May 5, and Fed officials can speak publicly about their views through Friday, June 2.