Fed chief Jerome Powell has vowed to follow the data in deciding how high to crank up interest rates. But lately, the data has been so confusing and contradictory that it’s hard to tell where the economy actually stands.
Federal Reserve Chair Jerome Powell and other Fed policymakers are making crucial decisions based on data that lately has been so confusing and contradictory that it's hard for them to know where the economy actually stands. | Tom Williams/Pool via APFederal Reserve chief Jerome Powell has vowed to follow the data in deciding how high to crank up interest rates to crush the worst inflation surge in four decades.
The Fed is “putting together a puzzle where the pieces were miscut and they just plain don’t fit together,” said David Wilcox, who led the central bank’s research division from 2011 to 2018. “Where is the economy today, and what direction is it headed? All of our measures, no matter how richly assembled, provide only an imperfect and somewhat out-of-date perspective on those key questions.”
“The economy has been changed,” said Nela Richardson, chief economist at payroll processing firm ADP. “It’s been tilted off its axis, and we’re not sure what angle it’s been tilted at.” Fed Governor Christopher Waller in a recent speech said he’s not putting too much stock in GDP numbers yet. For now, Fed policymakers seem convinced that the economy is still fundamentally strong, suggesting they are leaning more heavily on data about the job market, which is generally a clearer and timelier indicator of the economy’s health as a whole. But even here, there are indications that layoffs have begun ticking up, and wage growth has begun to decelerate.
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