The Wayne Economic Development Council recently hosted a discussion on the economy and monetary policy as part of its Briefings for Business series. The event was attended by key members of the Federal Reserve Bank of Cleveland, including Eddie Steiner, who chairs the Board's Audit Committee, and Steve Matthew, an active member of the Northeast Ohio Business Advisory Council.
During the meeting, the attendees provided valuable insights into economic conditions that inform the Cleveland Fed’s section of the Beige Book - a summary of regional economic developments published by the Federal Reserve prior to each FOMC meeting. This information plays a crucial role in shaping monetary policy decisions aimed at achieving price stability and maximum employment.
The Federal Open Market Committee (FOMC) recently decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent and continue reducing the Federal Reserve’s securities holdings. The decision is based on their confidence that inflation is moving sustainably toward their goal of 2 percent.
Inflation has been a significant concern since it peaked in 2022 between 7 to 9 percent. However, substantial progress has been made since then. Inflation readings were lower than expected in the second half of last year, with PCE inflation running at about their 2 percent goal over those six months.
Despite this progress, recent readings have not inspired greater confidence. The current lack of progress on inflation has been disappointing and suggests that it will take longer to reach their 2 percent goal than previously thought.
However, there is good news. The economy is well positioned to allow data accumulation without concern that monetary policy is overly restrictive. Last year's disinflation occurred amidst strong economic growth and labor markets. Indicators point to continued underlying momentum in the economy this year.
Labor market conditions also remain strong with job gains averaging about 270 thousand per month in Q1 this year compared to around 210 thousand per month the previous quarter. The unemployment rate remains low, at 3.9 percent in April.
Wage pressures have eased as labor demand has come into better balance with labor supply. Firms are expecting wage increases to average about 4 percent this year, down from 5 percent a year ago.
The current developments in activity, employment, and inflation at the national level are also reflected in Ohio’s economy. As in the nation, labor market conditions in the state remain strong but show some signs of moderating.
In conclusion, setting monetary policy will require careful consideration of the risks to both parts of their dual mandate as the economy evolves. The FOMC remains fully committed to returning inflation to their 2 percent goal because price stability is critical for the long-run health of the labor market, the overall economy, and the stability of the financial system.
