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The Federal Reserve isn’t sure where the economy going

Another Fed meeting, another round of tough questions for Jerome Powell.Seth Wenig/Associated Press

This column is from Trendlines, my business newsletter that covers the forces shaping the economy in Boston and beyond. If you’d like to receive it via email on Mondays and Fridays, sign up here.

Sunday dawned rainy and gray, fitting for a world dominated by awful news: Ordinary people murdered in the Mideast and Maine, an inexperienced congressman with a dubious commitment to secular democracy put second in line for the presidency, and the country unable to find common ground on any of it.

A walk in the raw autumn air only deepened the gloom.

The faux fright of Halloween decorations suddenly felt inappropriate and callous. So did Walmart’s Christmas commercial with Darlene Love singing “Marshmallow World” — Oh, the world is your snowball — that aired later during the Patriots game.


And the same might be said of this edition of the newsletter, a preview of this week’s upcoming economic news. Apologies, but let’s carry on.

What’s on the docket: Federal Reserve policy makers will meet Tuesday and Wednesday to discuss the economy and inflation.

They are expected to leave the range for their benchmark lending rate unchanged at 5.25 percent to 5.5 percent, just as they did after their September meeting. It would be the first back-to-back holding actions since the Fed began hiking interest rates in March 2022 in an effort to bring soaring inflation back to earth.

Officials have conceded that it’s been hard to discern where the economy is headed. So, like the rest of us, they’re waiting to see what happens next, looking for clear evidence that inflation is in a sustained retreat before declaring inflation a thing of the past.

One report that central bankers will have in hand is Tuesday’s release of the Employment Cost Index for the July-September quarter. ECI, a comprehensive measure of employee compensation, is closely watched by the Fed for signs of wage inflation, which can drive consumer prices higher.


The consensus forecast is that the index rose 1 percent in the quarter, matching the increase in the prior three months.

Employment cost growth averaged 0.65 percent a quarter in 2019 and 2020 before the pandemic-induced spike in inflation. The index gained an average of 1.2 percent in each of the past four quarters.

The big news comes on Friday, when the Labor Department issues its October employment report.

Employers added 190,000 jobs in October, according to the median estimate of economists surveyed by Bloomberg. That would be below the average increase of 240,000 jobs a month in the previous three months, but still much higher than the 100,000-a-month pace the Fed believes is sufficient to support the economy without fueling inflation.

What to watch for: With little chance of a rate hike this week, attention will be on Fed chairperson Jerome Powell’s post-meeting news conference. He will be questioned on a host of topics, probably including:

The economy’s resilience. Despite sharply higher lending rates, growth has exceeded expectations. Private forecasters now see gross domestic product — the broadest measure of the economy — expanding 2.2 percent this year. That’s faster than the “below-trend” growth that Powell has said is necessary to get inflation back to the central bank’s 2 percent target. Is another rate hike — an option that the Fed has kept open — necessary to slow the economy?


Treasury market yields. Yields on government securities have climbed steadily since the summer. That’s made it prohibitively expensive for many consumers to get a mortgage and businesses to borrow money to expand. The Fed hasn’t fully explained why Treasury yields have spiked, and whether it means we’ve moved into a new era in which investors demand higher yields in return for holding long-term government securities.

Rate cuts. Some Fed officials have suggested that their focus should shift from how much higher rates might need to go to how long rates remain “restrictive” — that is, keep a lid on growth. Powell will be pressed on his views of what has become known as the “higher for longer” approach.

The bottom line: Inflation has come way down since the peak in June 2022. While progress over the past few months has been modest — far from the convincing evidence that the Fed is waiting for — the outlook has brightened. A recession seems much less inevitable than it did six months or a year ago.

Not all the news is bad.

Larry Edelman can be reached at Follow him @GlobeNewsEd.