Photo: Koichi Kamoshida/Getty Images
Today’s economic data came in soft even by analyst expectations, with CPI falling to 1.7 per cent year-over-year in May and initial jobless claims rising to 386K.While the Federal Reserve won’t strictly be held to this data, it has previously said that it would consider using policy tools to combat a slowing economy if inflation fell below 2 per cent or the U.S. saw a slowdown in employment growth.
The situation right now appears to meet both criteria.
- Initial jobless claims have remained above the 350K mark, which is a troubling indicator for the economy. A graph of this data recently (see chart below) shows that a trend away from high unemployment could be gaining steam.
- Secondly, and more importantly, inflation has now dipped below 2 per cent. Indeed, it saw a pretty steep decline, falling from 2.3 per cent in April to 1.7 per cent in May. That will be worrisome to a Fed that has proved more scared of deflation than inflation.
Furthermore, concerns about the mounting crisis in Europe have increased tensions in financial markets. A topic that used to figure as a mere bullet point in speeches by Fed Chairman Ben Bernanke and even President Barack Obama, now the subject now appears to be at the top of the list of risks to the U.S. economic recovery.
We’ve been hearing from more and more FOMC members lately that they would at least consider monetary policy responses to mounting economic concerns, and this data could be enough to turn dithering into action.
Take a look at initial jobless claims data over the past three years:
Photo: Eric Platt/Business Insider, Data: St. Louis Federal Reserve