Month: April 2026

by paul gomme and peter rupert

The BEA came out with two important announcements on the heels of the FOMC decision to not raise the Federal Funds Rate (good call). While the price indices were higher than the Fed’s 2% target, they were in the “what should we do now” range. That is, the members of the FOMC were debating whether to lower or keep the rate at its current level and what to say about future policy.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Philip N. Jefferson; Anna Paulson; and Christopher J. Waller. Voting against this action were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting; and Beth M. Hammack, Neel Kashkari, and Lorie K. Logan, who supported maintaining the target range for the federal funds rate but did not support inclusion of an easing bias in the statement at this time.

The PCE price index rose 8.23% in March. Year-over-year it rose 3.5% and our preferred trend measure rose 5.30%.

The core PCE (ex food and energy) rose 3.58% on an annual basis, year-over-year 3.2% and the trend measure up 3.86%.

REal GDP

The BEA also announced that the advance estimate of real GDP for Q1 increased 2.0%. Personal Consumption Expenditures rose 1.6% and Private Investment rose 8.7% with the equipment component of investment rising 17.2% and Intellectual property products rising 13.0%. The Government sector rose 4.4%.

On a more negative note, both residential and non-residential structures investment have been in negative territory for quite some time.

Policy outlook

The real side of the economy continues a steady increase at the same time inflation has moved up considerably. It is interesting to conjecture what the Fed votes would have been had these reports come out before yesterday’s meeting. Mind you, today’s releases should not be a huge surprise to the FOMC. The Consumer Price Index release earlier this month signaled higher inflation, and economists at the Board of Governors are really good at now casting, so the National Income and Product Accounts data was almost certainly largely known.

by paul gomme and peter rupert

The BEA announced that the price index for Personal Consumption Expenditures (PCE) rose 4.60% on an annualized basis, the largest increase over the past year. Our preferred trend measure increased 3.75%, the largest increase in three years. The fact that the year-over-year increase actually fell (2.83% to 2.80%), and remains low, underscores our use of the trend measure: the year-over-year measure moves slowly.

Lest one thought that the reason for the big jump in the PCE was due to the roiling in the oil/energy market, prices in the PCE bundle excluding food and energy rose 4.49% on an annualized, though fell slightly from January’s reading of 4.81%.

One area that showed a major jump was in goods prices, likely affected by the disruption of transportation. Goods prices increased 9.27% on an annualized basis and our trend measure was up 4.36%.

Meanwhile, the Bureau of Labor Statistics released the Consumer Price Index (CPI) data for March. Ugly results are seen in the overall CPI picture. On an annualized basis, the month-over-month inflation rate rose from an unacceptable 3.25% (February) to an even worse 10.89% (March). To be sure, this increase was largely driven by the energy component of the CPI. The one month (that is, not annualized) price changes were: gasoline +21.2%, fuel oil +30.7%, overall energy +10.9%. To put these numbers into perspective, the one month change in the CPI was +0.9%. The year-over-year inflation rate rose more moderately, from 2.43% (March) to 3.29% (April). Our trend measure rose from 2.76% to 5.47%.

Turning to core CPI (that is, excluding food and energy), the annualized month-over-month inflation rate actually fell from 2.62% (February) to 2.38% (March) while the year-over-year tate rose slightly from 2.47% to 2.60%. Our measure of trend inflation also fell, from 2.68% to 2.58%.

Given the increase in inflation recorded in the March CPI report, we expect that the March PCE will similarly increase. However, these increases can be directly traced to the effects of the U.S./Israeli-Iran war on global oil supply and prices. The consensus among news commentators is that the effects of these global oil shocks will be temporary: Iran will allow shipping through the Strait of Hormuz to return to pre-war levels which will increase global oil supply. Even so, the effects on prices may last months. In such a circumstance, focusing on core inflation measures is justified. Further, measures of expected inflation do not indicate lasting effects.

Obviously, the jump in prices will affect the Fed’s next rate decision, but with the strong reading in the employment numbers and the current inflation numbers we see little chance in an interest rate cut in the near future.

by paul gomme and peter rupert

The BLS announced that payroll employment increased 178,000. The private sector added 186,000 while the government sector shed 8,000 jobs. Revisions to the two previous months were pretty much a wash, with January revised up 34,000 and February revised down 41,000.

The private service sector added the bulk of the jobs, increasing 143,000 with 89,900 coming from health care and social assistance.

Average weekly hours fell from 34.3 to 34.2. Combined with the employment change means that total hours fell slightly. Average hourly wa

Average hourly earnings rose from $37.29 to $37.38. Over the year earnings growth continues to outpace CPI inflation, meaning real wages have been rising since 2023.