Just-right inflation opens door to a Goldilocks economy
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By many indicators, there is much to like about America's economic backdrop.
The big picture: Consumer prices are no longer rising at a rapid pace — in some cases, costs are falling — a milestone for the economy that has been plagued by high inflation for years.
- The unemployment rate is edging up, but still at an historically low level.
- Those looking at their 401(k)s are probably pleased in recent days: the stock market is near a record high.
Why it matters: This is the economic sweet spot that Federal Reserve officials have been hoping for.
- From the standpoint of the Biden administration, the economy is performing just as they would have hoped.
- "The story for the last two years has been just how exceptional the performance of the U.S. economy has been, and that's not a secret," Fed chair Jerome Powell told Congress this week.
Catch up quick: The Consumer Price Index print yesterday was as good as an economic report can get.
- In June, the Consumer Price Index fell (yes, deflation!) for the first time since 2020.
- Some goods that have been weighing on consumer budgets in recent years — gas, some grocery items and cars — got cheaper.
What they're saying: "The reason I find the report excellent is it's not just one month — we got multiple months," Austan Goolsbee, Chicago Fed president (and, in a previous life, a top economic advisor to former President Obama), told reporters in the Windy City yesterday.
- Goolsbee added: "I think it's profoundly encouraging."
For more than a year, inflation has stopped eating away at workers' wages.
- Of course price levels remain high for a range of items. But America's biggest companies, including PepsiCo, are offering more promotions to draw back inflation-fatigued consumers.
The unemployment rate is above 4% for the first time since 2021 as it takes workers longer to find jobs. That bears watching for signs of economic weakness. For now, though, policymakers still see it as a solid labor market.
The bottom line: The economy is no longer in the rip-roaring state that helped stoke inflation.
- Rather economic activity is slowing, so far, in a way that is not too sudden. The gentle cooling gives the Fed room to cut interest rates possibly as soon as September.
