Tuesday, September 1

• Construction Spending

• ISM Manufacturing Index

• Job Openings and Labor Turnover Survey

• GDPNow update

Wednesday, September 2

• Factory Orders

• Beige Book

Thursday, September 3

• Initial Jobless Claims

• International Trade in Goods and Services

• Productivity and Costs (revised)

• ISM Services Index

• GDPNow update

• Governor Waller speaks on the economic outlook

Friday, September 4

• Employment Situation

Recent News

Inflation Stalled in July… The Bureau of Economic Analysis reported Wednesday that the personal consumption expenditures price index rose 0.2 percent in July. Core prices, which exclude food and energy, also increased 0.2 percent. Over the twelve months through July, headline PCE inflation was 3.7 percent, while core inflation was 3.3 percent. The chart below places the latest figures in context. Headline inflation bottomed out near 2.2 percent in the middle of last year, then climbed to roughly 4.0 percent this spring before easing. Core inflation, meanwhile, has risen from about 2.7 percent a year ago to 3.3 percent today. Neither measure is moving convincingly toward the Federal Reserve’s 2 percent target.

Spending Growth Remains Too Fast… The BEA also released its second estimate of second-quarter GDP on Wednesday. Real output growth was unchanged at an annualized rate of 1.5 percent, while nominal GDP (the total amount spent on domestically produced goods and services) was revised up to 8.0 percent from 7.9 percent in the advance estimate. The revision weakens the case for monetary easing. If productive capacity is expanding by about 2 percent a year, nominal spending must grow at roughly 4 percent to be consistent with 2 percent inflation. It grew at twice that rate last quarter, and the latest revision moved it farther from that benchmark, not closer.

Warsh at Jackson Hole… Chair Kevin Warsh delivered his first keynote address at Jackson Hole on Friday. He discussed artificial intelligence, forward guidance, and the principles he believes should guide monetary policy, but inflation was the central theme.

Warsh characterized the labor market as consistent with full employment and praised the economy’s overall performance. On inflation, however, he was less sanguine. He noted that the PCE price index had risen 3.7 percent over the past twelve months and 4.1 percent at a six-month annualized rate. He was blunt about where responsibility lies:

There is one signal nobody can miss: The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank. And that is where it belongs.

Warsh also cautioned against interpreting the summer’s softer readings as evidence of meaningful progress. Breaking the PCE price index into its 199 components, he noted that 54 percent had risen by more than 3 percent over the past twelve months, compared with 32 percent, on average, during the two decades before the pandemic.

Warsh sees little evidence that monetary policy is meaningfully restraining economic activity. Pointing to narrow credit spreads, heavy issuance, and accommodative bank lending standards, he said he would be “hard pressed to describe broad financial conditions as restrictive.” He also put money growth back on the list of indicators the Fed should watch:

[M]oney matters. It’s not fashionable these days, but my view is that money has something important to do with monetary policy. We should pay attention to money created by the central bank and money that comes from the banking and financial systems.

Warsh offered no signal about the September meeting: “I stand here today committed to a discipline, not to a decision.” He did, however, set a clear standard for judging the inflation outlook. The Committee must “be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”

Sound Money Project Roundup

• Standing Still as Inflation Runs Hot - Bryan Cutsinger

• Warsh Wants the Federal Reserve to Rethink the Rules - Thomas L. Hogan

• Fed’s Task Force Should Fix What It Targets - Nicolas Cachanosky

• July Inflation Rises, But Weakening Labor Complicates Fed’s Choice - Nicolas Cachanosky

• With Energy Prices Falling, Inflation Has Nowhere to Hide - Bryan Cutsinger

Tuesday, August 25

• Survey of Construction

Wednesday, August 26

• GDP (second estimate)

• PCE Price Index

• GDPNow update

Thursday, August 27

• Initial Jobless Claims

Friday, August 28

• H.6 Money Stock Measures

• Surveys of Consumers

Recent News

Minutes from the July FOMC Meeting… The Federal Reserve released the minutes of the July 28–29 FOMC meeting on Wednesday. The Committee voted 9–3 to hold the federal funds rate target at 3.5 to 3.75 percent, with Beth Hammack, Neel Kashkari, and Lorie Logan dissenting in favor of a 25-basis-point increase. The dissenters were not alone: several participants favored a hike at the meeting, judging that price pressures appeared broad based and that a more restrictive stance was needed to meet the Committee’s commitment to price stability. Some on the committee framed a hike now as insurance against having to do more later:

A few of the participants who favored raising the target range for the federal funds rate at this meeting judged that doing so would likely help forestall the need for a steeper and potentially more costly sequence of tightening moves at a later stage.

Even among those who voted to hold, the direction of travel is clear. Many participants judged that tightening would likely be necessary if inflation does not decline, and some doubted that financial conditions are currently restrictive enough to return inflation to 2 percent. Participants saw the risks to inflation as skewed to the upside, pointing to the conflict in the Middle East, tariffs, and strong AI-related demand. The deeper concern is what several years above target could do to expectations:

Many participants highlighted the possibility that, after several years of inflation above 2 percent, continued elevated inflation rates could begin to affect inflation expectations and wage- and price-setting decisions.

Most participants commented on balance sheet policy ahead of the task force’s findings, with many reaffirming that the federal funds rate, not the balance sheet, should remain the primary tool for adjusting the stance of policy. And Chairman Warsh floated moving to six scheduled meetings per year, roughly every two months, to allow more information to accumulate between meetings.

Nowcasting This Week’s PCE Report… The Bureau of Economic Analysis releases the July personal consumption expenditures price index on Wednesday. As of August 21, the Federal Reserve Bank of Cleveland’s nowcasting model puts July headline PCE inflation at 0.15 percent and core PCE inflation at 0.25 percent, which would leave the twelve-month rates at 3.65 percent and 3.29 percent, against 3.7 percent and 3.3 percent in June. Core prices rising 0.25 percent a month works out to about 3 percent a year. If Wednesday’s release comes in near the nowcast, the Committee will meet on September 15-16 with core inflation about where it stood in the spring, making the case for a rate cut difficult to justify.

Sound Money Project Roundup

• Standing Still as Inflation Runs Hot - Bryan Cutsinger

• One Month of Falling Prices Won’t Restore Price Stability - Bryan Cutsinger

• Warsh Wants the Federal Reserve to Rethink the Rules - Thomas L. Hogan

• Fed’s Task Force Should Fix What It Targets - Nicolas Cachanosky

• July Inflation Rises, But Weakening Labor Complicates Fed’s Choice - Nicolas Cachanosky

Tuesday, August 18

• GDPNow update

• Industrial Production and Capacity Utilization Release

• Survey of Construction

Wednesday, August 19

• FOMC Minutes (July 28–29 meeting)

Thursday, August 20

• Initial Jobless Claims

Recent News

Consumer Prices… Consumer prices rose 0.1 percent in July after falling 0.4 percent in June, the Bureau of Labor Statistics reported. Prices are up 3.4 percent from a year ago, down from 3.5 percent in June. Core CPI, which excludes food and energy, rose 0.2 percent in July and is up 2.5 percent over the past year, versus 2.6 percent in June. Shelter accounted for roughly two-thirds of the monthly increase, rising 0.1 percent, while energy prices fell 1.5 percent. As the chart below shows, both headline and core inflation remain above the Fed’s 2 percent target, with headline inflation well above where it bottomed out earlier this year, though both measures have edged lower over the past two months.

Producer Prices… The Producer Price Index for final demand was unchanged in July after edging down 0.1 percent in June, the Bureau of Labor Statistics reported. On an unadjusted basis, producer prices are up 4.7 percent from a year ago, the slowest year-over-year pace since March. A 0.2 percent rise in services and a 2.2 percent jump in construction prices offset a 0.7 percent drop in prices for final demand goods, led by a 5.7 percent decline in gasoline. As the chart below shows, producer price growth has climbed sharply since bottoming out in mid-2023, though the pace has eased over the past two months, down from a peak of 5.9 percent in May.

Hammack thinks it’s time to tighten… Cleveland Fed President Beth Hammack, speaking at a Dayton Area Chamber of Commerce breakfast on August 13, said the Fed should act now to bring inflation back to its 2 percent target rather than wait. She sees no tension in the dual mandate right now: unemployment has held between 4.1 and 4.3 percent over the past year, close to her estimate of maximum employment, while inflation has missed the Fed’s goal for more than five years and has drifted back above 3 percent after earlier progress. She argued policy isn’t restrictive today and that leaving rates where they are risks adding to price pressures she already sees as broad-based. Asked whether recent price increases are temporary or likely to stick, she pointed to five years of misses: the last two inflation reports came in better, she said, but she isn’t yet confident that holds.

Sound Money Project Roundup

• Standing Still as Inflation Runs Hot - Bryan Cutsinger

• One Month of Falling Prices Won’t Restore Price Stability - Bryan Cutsinger

• Warsh Wants the Federal Reserve to Rethink the Rules - Thomas L. Hogan

• Fed’s Task Force Should Fix What It Targets - Nicolas Cachanosky

• July Inflation Rises, But Weakening Labor Complicates Fed’s Choice - Nicolas Cachanosky

Wednesday, August 12

• Consumer Price Index Release

Thursday, August 13

• Producer Price Index Release

• Initial Jobless Claims

• Hammack Speaks To Dayton Area Chamber of Commerce

Friday, August 14

• GDPNow update

• Survey of Professional Forecasters

• Surveys of Consumers Release

Recent News

Job openings… Demand for workers stalled in June. The Bureau of Labor Statistics counted 7.4 million openings in its Job Openings and Labor Turnover Survey, and hires held at 5.3 million, both essentially unchanged from May. Separations totaled 5.4 million — 3.2 million quits and 1.8 million layoffs and discharges. The bureau also took 57,000 off its May count, which now stands at 7.5 million.

Payrolls… Employers cut 23,000 jobs over the month, against an average gain of 34,000 a month over the prior year, and the Bureau of Labor Statistics took a combined 103,000 off what it had reported for May and June. Unemployment held at 4.1 percent, so the softening showed up elsewhere: participation fell to 61.4 percent, down 0.7 point since January, and the share of adults holding a job fell to 58.9 percent, down 0.5 point.

Fed independence… President Trump is trying again to remove Lisa Cook from the Federal Reserve’s Board of Governors. His deputy chief of staff, Dan Scavino, wrote to Cook that the president is weighing whether to dismiss her, and gave her until August 26 to respond. The White House says she listed two homes as her primary residence when she applied for mortgages in 2021, the year before she came to the Fed. The charge traces back to a criminal referral that William Pulte, who runs the Federal Housing Finance Agency, sent last August. Cook says she did nothing of the kind, and financial records reported since then appear to cut against the White House. Her lawyers plan to fight.

The letter leans on the Supreme Court’s June decision in Trump v. Cook, which split 5 to 4 and stopped the first attempt because the president had moved without giving Cook notice or a chance to answer. Chief Justice Roberts wrote that she is owed a chance to make her case, not a hearing or a trial. The same opinion turned down the government’s claim that the bar for cause sits very low, said the Fed’s design calls for “a substantial threshold for ‘cause,’” and warned that letting any alleged misstep suffice would hand a president a ready pretext to swap out a governor who votes the wrong way.

What the majority did not decide is how much cause is enough, or whether conduct from before a governor took office can count at all. The district judge said it cannot.

Sound Money Project Roundup

• The Fed Is Expected to Hold Rates. The Rules Say It Shouldn’t - Matthew Schaffer

• Standing Still as Inflation Runs Hot - Bryan Cutsinger

• One Month of Falling Prices Won’t Restore Price Stability - Bryan Cutsinger

• Warsh Wants the Federal Reserve to Rethink the Rules - Thomas L. Hogan

Monday, August 3

• GDPNow update

Tuesday, August 4

• GDPNow update

• JOLTS Report

Wednesday, August 5

• Cook Speaks at the Anchorage Economic Development Corporation (AEDC) 2026 Economic Luncheon

Thursday, August 6

• GDPNow update

• Initial Jobless Claims

Friday, August 7

• Jobs Report

• Survey of Consumer Expectations

Saturday, August 8

• Bowman Speaks at the 2026 CEO & Senior Management Summit and Annual Meeting Speakers

Recent News

Slower growth… Real gross domestic product (GDP) grew at a continuously compounding annualized rate of 1.5 percent in 2026:Q2, according to the advance estimate from the Bureau of Economic Analysis released last week. It has grown 2.1 percent over the last year. For comparison, real GDP grew at a continuously compounding annualized rate of 2.5 percent over the five-year period just prior to the pandemic.

Nominal spending shows no such slowdown. Nominal GDP grew at a continuously compounding annualized rate of 7.6 percent in 2026:Q2 and has grown 6.3 percent over the last year. For comparison, it averaged just 4.1 percent annualized growth over the five years just prior to the pandemic. The level of spending tells the same story. Nominal spending totaled $32.48 trillion in 2026:Q2, compared with a neutral level of $32.01 trillion, which puts the nominal spending gap at 1.45 percent.

Prices… Inflation slowed in June, according to new data from the Bureau of Economic Analysis. The Personal Consumption Expenditures Price Index (PCEPI) fell at a continuously compounding annualized rate of 1.3 percent in June 2026, down from 5.5 percent growth in the prior month. It has averaged 4.3 percent annualized growth over the last six months and 3.6 percent over the last year.

Core inflation, which excludes volatile food and energy prices, also slowed. Core PCEPI grew at a continuously compounding annualized rate of 1.6 percent in June 2026, down from 4.0 percent in the prior month. It has averaged 3.7 percent annualized growth over the last six months and 3.2 percent over the last year.

Three Dissents… The Committee left the target range for the federal funds rate unchanged at 3.5 to 3.75 percent on July 29, but the vote was not unanimous. Lorie Logan, Beth Hammack, and Neel Kashkari each dissented in favor of a quarter-point increase, and each published a statement two days later explaining the vote. The three make different arguments, but they arrive at the same judgment: inflation is not on track to return to 2 percent on its own, and the current setting of policy is not restraining demand.

Logan’s argument starts with the stance of policy itself:

Labor, consumption and financial market conditions indicate that monetary policy is not restraining the economy. Without any policy restraint, inflation will likely continue to trend above target until there’s an unanticipated shock.

She puts the likely trend of inflation in the mid-2s rather than at 2 percent, with the risks to the upside, and describes the job market as solid and perhaps strengthening. Her conclusion is about timing: modest action now reduces the odds of having to take sharper action later.

Hammack was more explicit about where the pressure is coming from:

Supply-side factors, including energy prices, have boosted inflation this year, but I see inflationary pressures coming from the demand side of the economy, as well.

Businesses across the Fourth District, she reports, describe pricing pressures as broadening rather than fading. With unemployment near her estimate of maximum employment, she treats inflation as the more pressing half of the mandate and says plainly that she did not see the current policy stance as appropriately restrictive.

Kashkari takes on the supply-shock defense directly. He accepts the standard advice that policymakers should look through an individual shock, but not a run of them:

I increasingly believe that monetary policy does have an important role to play in addressing a series of successive supply shocks that might lead to entrenched higher inflation.

He points to the 1970s, when policymakers also read inflation as the product of successive supply shocks and eventually concluded that tighter money was necessary anyway. His preferred remedy is incremental: small moves now, which can be slowed or paused if inflation fades, rather than a larger correction forced on the Committee later.

Sound Money Project Roundup

• The Fed Is Expected to Hold Rates. The Rules Say It Shouldn’t - Matthew Schaffer

• Standing Still as Inflation Runs Hot - Bryan Cutsinger

• One Month of Falling Prices Won’t Restore Price Stability - Bryan Cutsinger

Actual Spending: $32.48 trillion
Neutral Spending: $32.01 trillion
Spending Gap: 1.45%
Policy Stance: Loose

Nominal spending exceeded its neutral level in 2026:Q2, resulting in a nominal spending gap of 1.45 percent. The confidence interval ranged from 0.75 percent (10th percentile) to 2.34 percent (90th percentile). The nominal spending gap suggests that monetary policy is now loose.

The nominal spending gap surged to 4.61 percent in 2021:Q2, before declining to 1.01 percent in 2023:Q2. It then rebounded to 1.73 percent in 2023:Q3 and remained elevated at 1.64 percent in 2023:Q4. It declined to 0.03 percent in 2025:Q1 before rebounding. It has been elevated for the last four quarters.

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Overview

Standard macroeconomic theory maintains that shocks to nominal spending—or, aggregate demand—cause real output to deviate from potential real output. Households and firms temporarily over-produce if nominal spending is greater than they had expected when employment and production plans were made. They temporarily under-produce if nominal spending is less than they had expected. In both cases, expectations ultimately adjust to ensure real output is consistent with potential real output, as determined by the available factors of production, technology, and preferences. But those temporary deviations may impose non-trivial welfare costs on society.

The implications of standard macroeconomic theory for monetary policy are straightforward: the central bank should anchor expectations and then stabilize nominal spending along a path consistent with those expectations. By anchoring expectations, the central bank reduces the risks—and, hence, costs—associated with long term contracts. By delivering nominal spending in line with expectations, it prevents households and firms from being fooled into over-producing or under-producing. Such a policy would not eliminate all macroeconomic fluctuation. In particular, it would not prevent changes in real output that are consistent with changes in potential real output. Nonetheless, it has the potential to improve welfare by eliminating—or, at least mitigating—undesirable macroeconomic fluctuation.

The nominal spending gap tracks the difference between actual and expected (or, neutral) nominal spending. It can be used to judge the stance of monetary policy. When nominal spending is greater than expected, the nominal spending gap is positive—an indication that monetary policy is loose. When nominal spending is less than expected, the nominal spending gap is negative—an indication that monetary policy is tight. When nominal spending is equal to expected nominal spending, the nominal spending gap is zero—an indication that monetary policy is neutral.

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Technical Description

The nominal spending gap is defined as

where N_t is the level of nominal spending at time t and N_t* is the neutral level of nominal spending at time t.

Given the equation of exchange, N_t = P_tY_t, where P_t is the price level at t and Y_t is real output at t, nominal spending can be measured as the nominal value of all final goods and services produced—i.e., nominal gross domestic product.

The neutral level of nominal spending in the current period is the level of nominal spending that was expected when existing production plans were made. Given conventional estimates of the expectations-adjustment process and the available data, I estimate the neutral level of nominal spending as

where E(P_tY_t | Ω_t-i) is the expectation of nominal spending at t given the information the median professional forecaster possesses at t-i. Specifically, I average the median forecast of nominal gross domestic product for the current period as presented in the Philadelphia Federal Reserve's Survey of Professional Forecasters over the prior five quarters to estimate neutral nominal spending in the current quarter.

Two periods serve to illustrate the usefulness of comparing the actual and neutral levels of nominal spending. Actual nominal spending fell below the neutral level of nominal spending in 2008, and remained below it for around two years. This implies that monetary policy was tight over the period. As standard macroeconomic theory would predict, real output and the price level fell below their pre-shock growth paths during this period.

Actual nominal spending exceeded the neutral level of nominal spending beginning in 2021, and has remained above it in the time since. This implies that monetary policy was loose over the period. As standard macroeconomic theory would predict, the price level rose above its pre-shock growth path during this period. (A series of real shocks associated with the COVID-19 pandemic, policy responses to the pandemic, supply chain disruptions, and Russia’s invasion of Ukraine kept real output below its pre-2020 growth path during this period. While those real shocks would explain a temporary increase in the level of prices, which would return to trend as output recovered, they cannot account for the observed permanent increase in the level of prices.)

Given the plausible usefulness of comparing actual and neutral levels of nominal spending, I estimate the nominal spending gap. Specifically, I use the aforementioned estimate of the neutral level of nominal spending to calculate the value of (N_t - N̂_t*)/N̂_t* for each quarter over the period from 1969:Q4 to 2026:Q2.

The nominal spending gap is used to classify the stance of monetary policy in each quarter as Tight (Less than -1.25%), Moderately Tight (-1.25% to -0.75%), Approximately Neutral (-0.75% to 0.75%), Moderately Loose (0.75% to 1.25%), or Loose (Greater than 1.25%). The share of quarters in each category is presented in the following table for the 1969:Q4 to 2026:Q2 and 1996:Q1 to 2026:Q2 periods.

For additional details and relevant sources, see Luther (2024) “Neutral Nominal Spending and the Nominal Spending Gap,” Sound Money Project Working Paper.

Federal Funds Rate Target Range: 3.50 - 3.75%
Expected Target Range after July FOMC Meeting: 3.50 - 3.75%
Rule-Implied Range: 3.76 - 6.01%

The Federal Open Market Committee (FOMC) will likely leave its federal funds rate target at 3.50–3.75% this week. CME FedWatch currently puts the probability of no change at around 60 percent. This target range remains below the rates prescribed by the leading monetary rules. An original Taylor rule prescribes the highest target rate at 6.01%, while a modified Taylor rule prescribes 4.24%. A nominal gross domestic product (NGDP) growth rule implies a similar rate of 4.25%, while an NGDP level rule prescribes 3.76%, just above the upper bound of the current target range.

Recent inflation data provide some justification for waiting another meeting before tightening policy, but inflation remains well above the Fed’s 2% target and nominal spending continues to grow faster than its long-run benchmark. The leading monetary rules therefore suggest that the current policy stance is too accommodative. If the FOMC leaves rates unchanged this week, an increase should remain under serious consideration at the September meeting.

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Background

A monetary policy rule is a systematic guideline central banks can use to determine the appropriate stance of monetary policy. The most popular example, called the Taylor rule, instructs the central bank to set its federal funds rate target based on the prevailing rate of inflation and real economic activity. A nominal gross domestic product (NGDP) targeting rule, in contrast, suggests that the central bank should aim to stabilize nominal spending.

Taylor Rules

In his original formulation, Stanford economist John Taylor proposed that the federal funds rate target be set equal to a long-run neutral rate and adjusted as inflation deviates from the central bank’s target or real economic activity deviates from the economy’s full-employment potential. When inflation is above target or real economic activity exceeds potential, the central bank should raise its target rate. When inflation is below target or real economic activity falls short of potential, the central bank should lower its target rate. More formally, the original Taylor rule is written as follows:

where f_t is the federal funds rate target, r_t* is the real long-run neutral interest rate, π_t* is the central bank’s inflation target, π_t is the prevailing rate of inflation, and γ_t is a measure of the deviation in real economic activity from potential (.e.g., the unemployment gap).

Following Taylor’s original formulation, economists have proposed many other Taylor-type rules. For example, some make the rule “forward-looking” by including forecasts of expected future inflation rather than the most recently available historical data. The forward-looking Taylor rule is justified on the grounds that monetary policy often needs to act preemptively in anticipation of future developments, particularly with regard to stabilizing inflation expectations.

Another approach is to smooth the rule by including the weighted value of the most recent federal funds rate on the right-hand side of the formula. The smoothed Taylor rule is justified on the grounds that excessive interest rate volatility increases uncertainty and potentially destabilizes the link between short-term and long-term interest rates.

The modified Taylor rule presented above is both smoothed and forward-looking.

NGDP Rules

Some economists have developed Taylor-type rules that will stabilize nominal spending—or, nominal gross domestic product (NGDP). These rules advise the central bank to raise its policy rate when nominal spending growth is too high and lower its policy rate when nominal spending growth is too low. More formally, an NGDP targeting rule is written as follows:

where f_t is the federal funds rate target, ρ is a smoothing parameter between 0 and 1, (r_t* + π_t*) is the nominal neutral interest rate, Ω is an adjustment parameter, and N_t is the nominal spending gap.

The nominal spending gap can take various forms. One option is to use the difference between the most recent NGDP growth rate and a 4% target growth rate, which is consistent with the idea that real GDP growth is typically around 2% and the Federal Reserve targets 2% inflation. Another option is to use the nominal spending gap, which measures the difference between actual nominal spending and expected nominal spending. The first option targets a growth rate for nominal spending, which does not account for previous deviations from target. The second option targets the level of nominal spending, which advises the central bank to make up for recent mistakes.

Estimates

Estimates for the original, smoothed, forward-looking, and modified (i.e., smoothed and forward-looking) Taylor rules are presented in Table 1. The original and smoothed rules use the four-quarter PCE inflation rate as a measure of inflation. The forward-looking and modified rules use the forecasted value of four-quarter PCE inflation three quarters hence from the Survey of Professional Forecasters. Two estimates are constructed for each rule. The first estimate uses the median projected longer run federal funds rate in the most recent Summary of Economic Projections as a proxy for the nominal neutral rate of interest, r_t* + π_t*. The second estimate uses the New York Fed’s Holston-Laubach-Williams estimate for the real interest rate, r_t*.

Estimates for the NGDP growth and level rules are presented in Table 2. As with the Taylor rules presented above, I construct two estimates for each rule using the Summary of Economic Projections and New York Fed’s Holston-Laubach-Williams estimate. I employ a smoothing parameter equal to 0.5 and an adjustment parameter equal to 1.0 for all four estimates.

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References

Beckworth, D., & Hendrickson, J. R. (2020). Nominal GDP targeting and the Taylor rule on an even playing field. Journal of Money, Credit and Banking, 52(1), 269-286.

Beckworth, D., & Horan, P. J. (2024). A two-for-one deal: Targeting nominal GDP to create a supply-shock robust inflation target. Journal of Policy Modeling, 46(6), 1071-1089.

Beckworth, D., & Horan, P. J. (2025). The fate of FAIT: salvaging the Fed’s framework. Southern Economic Journal, 91(4), 1391-1403.

Hendrickson, J. R. (2012). An overhaul of Federal Reserve doctrine: nominal income and the Great Moderation. Journal of Macroeconomics, 34(2), 304-317.

Luther, W. J. (2024). Neutral Nominal Spending and the Nominal Spending Gap. Sound Money Project Working Paper.

Taylor, J. B. (1993). Discretion versus policy rules in practice. In Carnegie-Rochester conference series on public policy (Vol. 39, pp. 195-214). North-Holland.

Monday, July 27

• GDPNow update

Tuesday, July 28

• FOMC Meeting

• H.6 Money Stock Measures

• GDPNow update

Wednesday, July 29

• FOMC Meeting and Press Conference

Thursday, July 30

• GDP (advance estimate)

• PCE Price Index

• Initial Jobless Claims

• GDPNow update

Friday, July 31

• Employment Cost Index

• Surveys of Consumers

Recent News

Odds of a Rate Increase… The Federal Open Market Committee (FOMC) meets July 28–29, and market participants overwhelmingly expect no change to the federal funds rate target, which has stood at 3.5 to 3.75 percent. The CME Group puts the odds of no change around 63 percent. The more telling figure, though, is the roughly 36 percent chance markets now assign to a 25-basis-point hike. And looking further out, by the Committee’s September meeting a majority of market participants now expect a hike.

In June, the Committee took its first step away from easing, dropping the language that had signaled a bias toward rate cuts and moving to a neutral stance. Now, a meeting later, markets are pricing a real chance that the next move is not a cut but a hike. The minutes from the June meeting reveal why. Although all participants supported holding rates steady, they were split on where policy should head next. Many judged that the appropriate rate would end the year within or slightly below the current range, while many others saw it moving higher. The minutes frame the disagreement around two scenarios: one in which price pressures fade and another in which inflation stays elevated, driven by tariffs, the conflict in the Middle East, and strong AI-related demand. On the latter, the Committee was direct:

In such scenarios, almost all of these participants indicated that some policy firming would likely be warranted to return inflation to 2 percent.

Falling Jobless Claims… A tight labor market may give the Committee the room it needs to act. New data from the Department of Labor show that initial claims for unemployment insurance fell to 187,000 in the week ending July 18, a decrease of 22,000 from the prior week and the lowest reading in months. The four-week moving average, which smooths out weekly volatility, slipped to 207,500. With layoffs subdued and hiring apparently steady, the downside risks to employment that might otherwise stay the Committee’s hand look muted. That matters heading into this week: a labor market showing this little strain gives the hawks on the Committee more latitude to raise the policy rate should they judge that inflation demands it.

Sound Money Project Roundup

• Why Is the Federal Reserve Paying Banks Billions in Interest? - Thomas L. Hogan

• Trump v. Cook Carve-Out Leaves the Fed Above the Law - Alexander W. Salter

• The Fed Needs Independence, Not Immunity - Nicolas Cachanosky

• June Inflation Slowed as Energy Prices Fell - Bryan P. Cutsinger

Thursday, July 23

• Unemployment Insurance Weekly Claims Report

Friday, July 24

• Survey of Construction

There are no Federal Reserve speeches, as we are entering the blackout period ahead of the upcoming FOMC meeting on July 28–29.

Recent News

Inflation Cools Sharply… The Consumer Price Index, released July 14, showed headline prices falling 0.4 percent in June, the largest one-month decline since April 2020, after a 0.5 percent rise in May. The drop was driven almost entirely by energy, which tumbled 5.7 percent as gasoline fell 9.7 percent, more than offsetting increases in shelter and food. Over the past 12 months, the all-items index rose 3.5 percent, down from 4.2 percent in May. Core CPI, which excludes food and energy, was flat on the month and up 2.6 percent over the year, its slowest annual pace in this cycle.

Producer Prices Fall Too… The Producer Price Index for final demand, released July 15, fell 0.3 percent in June, seasonally adjusted, after rising 0.6 percent in May. The decline was led by final demand goods, which dropped 1.4 percent as energy prices sank 6.4 percent and gasoline plunged 12.0 percent; final demand services edged up 0.2 percent. Over the past 12 months, final demand prices rose 5.5 percent, down from 6.0 percent in May. Excluding foods, energy, and trade services, the index rose 0.1 percent on the month and 5.1 percent over the year.

At the Crossroads… The June inflation data prompted notably different emphases from two Fed officials speaking within days of each other. Governor Christopher Waller, addressing the New York Association for Business Economics on July 13, warned that core PCE inflation had climbed from 3.0 percent in December to 3.4 percent in May and could no longer be pinned on tariffs:

If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term.

Vice Chair Philip Jefferson, speaking at Stanford on July 16, struck a more patient tone, framing the energy spike and AI boom as overlapping supply-and-demand shocks and stressing the value of looking through temporary disturbances:

If a shock is expected to reverse before monetary policy can take effect, looking through it may be the appropriate approach.

Both are committed to the 2 percent target and both back the current 3.5–3.75 percent range, but the contrast is one of risk management: Waller leans toward pre-emptive tightening if inflation stays hot, while Jefferson emphasizes weighing risks to both sides of the mandate before acting.

Sound Money Project Roundup

• Why Is the Federal Reserve Paying Banks Billions in Interest? - Thomas L. Hogan

• Trump v. Cook Carve-Out Leaves the Fed Above the Law - Alexander W. Salter

• The Fed Needs Independence, Not Immunity - Nicolas Cachanosky

• June Inflation Slowed as Energy Prices Fell - Bryan P. Cutsinger

Monday, July 13

• Bowman Speaks at the Bank Policy Institute (BPI) Roundtable

• Waller Speaks at New York Association for Business Economics

Tuesday, July 14

• Consumer Price Index Release

• Goolsbee Participates in Fireside Chat at Kenosha Area Business Alliance Business Lunch

• Barr Speaks at the Federal Reserve Board Annual Financial Inclusion Conference

• Barr Holds Discussion at the Federal Reserve Board Annual Financial Inclusion Conference

• Cook Holds Discussion at the Federal Reserve Board Annual Financial Inclusion Conference

• Bowman Speaks at the Federal Reserve Board Annual Financial Inclusion Conference

Wednesday, July 15

• Producer Price Index Release

• Beige Book Release

• Williams Delivers Remarks at “A Conversation with New York Fed President John C. Williams”

• Cook Speaks at the Exchequer Club Luncheon

Thursday, July 16

• GDPNow Update

• Jefferson Speaks at “In Conversation with Philip Jefferson”

Friday, July 17

• Industrial Production and Capacity Utilization Release

• Surveys of Consumers Release

• GDPNow Update

Recent News

Consumer Expectations Shift… The New York Fed’s June Survey of Consumer Expectations, out last week, showed households bracing for more near-term inflation but feeling steadier about jobs. Median one-year-ahead inflation expectations rose 0.2 point to 3.7 percent, the highest since September 2023, and three-year-ahead expectations rose to 3.3 percent, the highest since June 2022, while the five-year measure held at 3.0 percent. Expected gas price growth bucked the trend, tumbling 3.5 points to 1.5 percent. On the labor side, the perceived odds of losing one’s job fell to 14.1 percent and of finding new work rose to 44.9 percent. Households also felt better about their current finances, even as more expect credit to tighten ahead.

Cooling Growth… The Atlanta Fed now estimates real gross domestic product (GDP) will grow at an annualized rate of just 1.3 percent in 2026:Q2, according to the latest GDPNow update released on July 8. That marks a sharp downgrade from the 2.5 percent pace the model projected as of late June, and it sits well below the 2.2 percent real GDP growth the median Federal Open Market Committee (FOMC) member penciled in for the year.

Two Thoughts on Transmission… Governor Christopher Waller used a July 6 Bank of Italy conference to offer two ideas about how monetary policy actually reaches the economy, both cutting against the reflex to lean on historical averages when the present looks nothing like the past. His first point: initial conditions are everything, so policy should be set from what is happening now, not the average of past cycles. He pointed to 2022, when a record ratio of two job vacancies per unemployed worker let firms respond to tighter policy by cutting openings rather than jobs, so unemployment rose only modestly rather than spiking as many had feared. Big, sudden shocks also change behavior, he argued, making the usual linear models and long lags misleading.

His second idea, that forward guidance is more art than science. Used well it pulls the future forward, as when the mere signal of coming hikes in late 2021 lifted two-year Treasury yields nearly 200 basis points before the FOMC moved. Used rigidly it backfires, as with the September 2020 guidance that tied the Committee’s hands as inflation surged in 2021. Guidance, he said, is hardest to give when scenarios genuinely diverge and you can’t average your way to a base case. So the takeaway is that forward guidance can help speed up policy transmission, but if it is not flexible enough, it can hinder policy transmission. And, in some cases, it’s best not to use it at all:

I am driving and come to an intersection. The light turns yellow. I can stop before the intersection and sit through the light. Or I can drive through the intersection and keep going. But my base case is not to stop in the middle of the intersection.

The timing is notable: Waller’s skepticism of rigid guidance lands just weeks after Chairman Warsh stripped forward guidance from the FOMC’s post-meeting statement, suggesting his view has company at the top of the Committee.

Sound Money Project Roundup

• Why Is the Federal Reserve Paying Banks Billions in Interest? - Thomas L. Hogan

• Trump v. Cook Carve-Out Leaves the Fed Above the Law - Alexander W. Salter

• The Fed Needs Independence, Not Immunity - Nicolas Cachanosky

Monday, July 6

• Waller Speaks at the Closing Conference of the European System of Central Banks Research Network on Challenges for Monetary Policy Transmission in a Changing World

Tuesday, July 7

• Survey of Consumer Expectations Release

• GDPNow Update

Wednesday, July 8

• GDPNow Update

Thursday, July 9

• Williams Delivers Keynote Moderated Discussion at The Future of Market Liquidity and Functioning Workshop

Recent News

JOLTS… Job openings held steady at 7.6 million in May, according to the Job Openings and Labor Turnover Summary from the Bureau of Labor Statistics. Hires were unchanged at 5.2 million, and total separations changed little at 5.1 million. Within separations, quits held at 3.1 million and layoffs and discharges were unchanged at 1.7 million.

The job openings rate remained at 4.6 percent, while the hires rate held at 3.3 percent and the total separations rate was unchanged at 3.2 percent. The quits rate, a gauge of workers’ willingness to leave jobs, stayed at 1.9 percent, and the layoffs and discharges rate held at 1.1 percent. April’s figures were revised modestly: job openings were revised down by 33,000 to 7.6 million, while hires were revised up by 99,000 to 5.2 million and total separations were revised up by 60,000 to 5.0 million.

Employment… The labor market showed modest signs of cooling in June, according to the Employment Situation report from the Bureau of Labor Statistics. Nonfarm payrolls rose by 57,000, while the unemployment rate decreased slightly to 4.2 percent. Revisions to prior months were notably downward: April’s gain was revised down to 148,000 from 179,000, and May’s was revised down to 129,000 from 172,000, subtracting a combined 74,000 jobs from the previously reported totals.

ECB Forum… Last week, Federal Reserve Chairman Kevin Warsh joined ECB President Christine Lagarde, Bank of England Governor Andrew Bailey, and Bank of Canada Governor Tiff Macklem for a panel discussion at the ECB Forum on Central Banking in Portugal.

Asked whether a July rate move was on the table, Warsh declined to offer forward guidance, noting only that the Federal Open Market Committee’s next meeting is four weeks away and that he wants a genuine debate among his colleagues before any decision is made. He described the current picture as one where labor markets are steady, demand is solid, and productivity growth has been strong, and he reaffirmed that the Fed remains committed to restoring price stability.

Much of the discussion turned to artificial intelligence. Warsh argued that productivity gains from AI could make the United States a major economic winner over the medium term, dismissing fears that automation will simply destroy jobs as a version of the long-discredited “lump of labor” argument. At the same time, he cautioned that the timing of AI’s disinflationary and inflationary effects on the economy remains uncertain and will need to be watched closely.

On the size of the Fed’s balance sheet, Warsh reiterated his long-standing preference for using interest rates as the primary tool of monetary policy rather than the balance sheet, and said a newly formed outside task force will study whether and how the balance sheet should be reduced further.

Asked about the Supreme Court’s recent ruling preserving Governor Lisa Cook’s seat, Warsh said the Fed had operated independently before the decision and would continue to do so, adding that he takes seriously both the rule of law and the Fed’s obligation to deliver on its dual mandate.

Despite the many open questions on the table, Warsh struck an optimistic note about the U.S. economy’s prospects:

[I]f the Fed can deliver on its remit to deliver [price stability], I’ve never been more optimistic about what the growth engine of the US could produce.

Tuesday, June 30

• Job Openings and Labor Turnover Survey Release

Wednesday, July 1

• GDPNow Update

• Warsh Speaks at the European Central Bank (ECB) Forum on Central Banking 2026

Thursday, July 2

• Employment Situation Release

Recent News

Prices… Inflation increased in May, according to new data from the Bureau of Economic Analysis. The Personal Consumption Expenditures Price Index (PCEPI) grew at a continuously compounding annualized rate of 5.4 percent in May 2026, up from 4.9 percent in the prior month. It has averaged 5.2 percent annualized growth over the last six months and 4.0 percent over the last year.

Core inflation, which excludes volatile food and energy prices, also rose. Core PCEPI grew at a continuously compounding annualized rate of 3.8 percent in May 2026, up from 3 percent in the prior month. It has averaged 4.1 percent annualized growth over the last six months and 3.4 percent over the last year.

Although much of the recent rise in inflation can be explained by the ongoing conflict in the Middle East, which has pushed up energy prices, excess demand continues to contribute to the longer run inflation problem. Nominal spending has grown at a continuously compounding annualized rate of 5.6 percent over the last year. For comparison, it averaged just 4.1 percent annualized growth over the five years just prior to the pandemic. Absent a change in total factor productivity growth, restoring nominal spending growth to its pre-pandemic rate would reduce the annual rate of inflation by 160 basis points.

Solid growth… Real gross domestic product (GDP) grew at a continuously compounding annualized rate of 2.1 percent in 2026:Q1, according to the third estimate from the Bureau of Economic Analysis released last week. It has grown 2.7 percent over the last year. For comparison, real GDP grew at a continuously compounding annualized rate of 2.5 percent over the five-year period just prior to the pandemic.

The Atlanta Fed currently estimates real GDP will grow at an annualized rate of 2.5 percent in 2026:Q2. Earlier this month, the median Federal Open Market Committee (FOMC) member projected 2.2 percent real GDP growth this year.

Dollar Dominance… Governor Christopher Waller opened the Fed’s Fifth Conference on the International Roles of the U.S. Dollar on June 22, with this year’s focus on how stablecoins are reshaping the dollar’s place in the world. His message was simple. The foundations of dollar dominance are intact, but the machinery around them is changing fast.

The reasons the world reaches for dollars haven’t gone anywhere. Deep, liquid markets and a long reputation for the rule of law still do most of the work. What’s new is the plumbing. Tokenized assets are building fresh channels for moving dollars around, alongside the banks and payment systems that have always handled the job.

Distributed ledger technologies and tokenized assets, such as stablecoins, are creating new channels for global dollar intermediation.

Waller didn’t treat any of this as a threat. He sees stablecoins as part complement, part competitor to the existing system, and as an economist he’s fine with that. More competition, in his view, tends to leave consumers better off.

The Fed sits at the center of both stories, the dollar’s global role and the rules taking shape around digital assets, so where a governor lands on stablecoins is worth tracking. Waller is looking at dollar-backed tokens, including the prospect that they channel foreign demand for safe assets straight into the Treasury market, and seeing opportunity rather than something to wall off.

Monday, June 22

• Waller Speaks at Federal Reserve Board Conference

Tuesday, June 23

• Money Stock Measures Release

Thursday, June 25

• Personal Consumption Expenditures Price Index Release

• Gross Domestic Product Release

• GDPNow Update

• Goolsbee Speaks at Chicago Council on Global Affairs Global Economy Dialogue Series Event

• Williams Speaks at Crane’s Money Fund Symposium

Friday, June 26

• Surveys of Consumers Update

• Williams Speaks at Bank of International Settlements Conference

Recent News

On hold… In a widely-anticipated move, the Federal Open Market Committee (FOMC) voted to hold its federal funds rate target steady at last week’s meeting. The federal funds rate target range has stood at 3.5 to 3.75 percent since December 2025.

Federal Reserve Chairman Kevin Warsh wasted no time shaking things up, starting with the FOMC’s post-meeting statement. “It’s a bit shorter, a bit simpler, and it dispenses with some older language,” Warsh said at the post-meeting press conference. Most notably, the new statement omits any forward guidance, which Warsh said the FOMC “agreed was not well suited to the current policy conjuncture.”

Warsh also announced the creation of five task forces, which will consider issues related to the Fed’s communications, its balance sheet, its use and reliance on existing data, productivity and jobs, and its inflation frameworks:

For each of these independent task forces, I’m enlisting some of the very best minds both inside and outside the economics profession. They will be supported by subject matter specialists from our superb Fed staff and they’ll have a straightforward charge. Start with first principles, ask hard questions, examine current practice, consider alternatives, and ultimately propose next steps for policymaker consideration.

Warsh said the task forces will likely “begin work in the next couple of weeks” with “most if not all of them concluding by year end.”

Looking ahead… FOMC members submitted new projections for inflation, production, unemployment, and the federal funds rate at last week’s meeting. The median FOMC member (excluding Warsh, who did not submit any projections) now expects the Personal Consumption Expenditures Price Index will grow 3.6 percent in 2026. Back in March, he or she had projected 2.7 percent inflation this year. The median member now projects 2.3 percent PCEPI inflation in 2027 (up from 2.2 percent) and 2.0 percent PCEPI inflation in 2028 (unchanged).

The median FOMC member revised down their projection for real Gross Domestic Product growth. They now expect 2.2 percent real GDP growth in 2026, compared with 2.4 percent projected back in March. The median member now projects 2.3 percent real GDP growth in 2027 (unchanged) and 2.2 percent real GDP growth in 2028 (up from 2.1 percent).

The median FOMC member now expects 4.3 percent unemployment in 2026, down from 4.4 percent back in March. They continue to expect 4.3 percent unemployment in 2027 and 4.2 percent unemployment in 2028.

Most FOMC members projected a higher federal funds rate by the end of the year than they had thought just a few months ago. Back in March, all nineteen members said they thought the federal funds rate would be within or below the current 3.5 to 3.75 percent target range at the end of 2026. Now, only nine think so—and only one of those still thinks it will be below the current target range. Three members are projecting the midpoint of the federal funds rate target range will be 25 basis points higher; five are projecting it will be 50 basis points higher; and one is projecting it will be 75 basis points higher.

At the post-meeting press conference, Warsh downplayed the projections:

I reviewed the dot plots and, when I saw the submissions, I noted that all the submissions were coming in with pencils. You know, those kind with the big erasers. That’s to say that I think my colleagues around the table, when they submitted their dots, understand the world is changing quite quickly and they didn’t feel bound by them six weeks from now or six days from now in the event that their circumstances change.

I’ll note a couple other things. What I heard around the table was, as they submitted their modal forecasts—their modal forecasts, to be clear, weren’t this was more likely than not. This was more likely than their other scenarios. So, I didn’t hear tons of conviction.

Production… Industrial production increased 0.1 percent in May 2026, new data from the Fed show. Industrial production was 1.7 percentage points higher than its year-earlier level. It was 1.6 percentage points higher than it was in January 2020, just prior to the pandemic.

Capacity utilization was 76.2 percent in May, up from 76.1 percent in the prior month. It was 0.3 percentage points higher than its year-earlier level and 3.2 percentage points below its long-run average.

Federal Funds Rate Target Range: 3.50 - 3.75%
Expected Target Range after April FOMC Meeting: 3.50 - 3.75%
Rule-Implied Range: 3.69 - 5.91%

The Federal Open Market Committee (FOMC) is expected to keep its federal funds rate target in the range of 3.50 - 3.75% at this week’s meeting. This target range remains below the rates prescribed by many of the leading monetary rules. An original Taylor rule prescribes the highest target rate, at 5.91%, while a modified Taylor rule prescribes 4.11%. Nominal gross domestic product (NGDP) growth (3.86%) and level (3.69%) rules imply policy rates somewhat closer to the current target range.

Recent comments from Fed officials indicate that a rate hike is unlikely at this week’s meeting, but could be on the table later in 2026. Shifting from an easing bias toward a more neutral policy stance is justified by recent economic data. The leading monetary rules, however, suggest that a neutral policy stance may not be sufficient. An increase in the policy rate should be considered sooner rather than later.

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Background

A monetary policy rule is a systematic guideline central banks can use to determine the appropriate stance of monetary policy. The most popular example, called the Taylor rule, instructs the central bank to set its federal funds rate target based on the prevailing rate of inflation and real economic activity. A nominal gross domestic product (NGDP) targeting rule, in contrast, suggests that the central bank should aim to stabilize nominal spending.

Taylor Rules

In his original formulation, Stanford economist John Taylor proposed that the federal funds rate target be set equal to a long-run neutral rate and adjusted as inflation deviates from the central bank’s target or real economic activity deviates from the economy’s full-employment potential. When inflation is above target or real economic activity exceeds potential, the central bank should raise its target rate. When inflation is below target or real economic activity falls short of potential, the central bank should lower its target rate. More formally, the original Taylor rule is written as follows:

where f_t is the federal funds rate target, r_t* is the real long-run neutral interest rate, π_t* is the central bank’s inflation target, π_t is the prevailing rate of inflation, and γ_t is a measure of the deviation in real economic activity from potential (.e.g., the unemployment gap).

Following Taylor’s original formulation, economists have proposed many other Taylor-type rules. For example, some make the rule “forward-looking” by including forecasts of expected future inflation rather than the most recently available historical data. The forward-looking Taylor rule is justified on the grounds that monetary policy often needs to act preemptively in anticipation of future developments, particularly with regard to stabilizing inflation expectations.

Another approach is to smooth the rule by including the weighted value of the most recent federal funds rate on the right-hand side of the formula. The smoothed Taylor rule is justified on the grounds that excessive interest rate volatility increases uncertainty and potentially destabilizes the link between short-term and long-term interest rates.

The modified Taylor rule presented above is both smoothed and forward-looking.

NGDP Rules

Some economists have developed Taylor-type rules that will stabilize nominal spending—or, nominal gross domestic product (NGDP). These rules advise the central bank to raise its policy rate when nominal spending growth is too high and lower its policy rate when nominal spending growth is too low. More formally, an NGDP targeting rule is written as follows:

where f_t is the federal funds rate target, ρ is a smoothing parameter between 0 and 1, (r_t* + π_t*) is the nominal neutral interest rate, Ω is an adjustment parameter, and N_t is the nominal spending gap.

The nominal spending gap can take various forms. One option is to use the difference between the most recent NGDP growth rate and a 4% target growth rate, which is consistent with the idea that real GDP growth is typically around 2% and the Federal Reserve targets 2% inflation. Another option is to use the nominal spending gap, which measures the difference between actual nominal spending and expected nominal spending. The first option targets a growth rate for nominal spending, which does not account for previous deviations from target. The second option targets the level of nominal spending, which advises the central bank to make up for recent mistakes.

Estimates

Estimates for the original, smoothed, forward-looking, and modified (i.e., smoothed and forward-looking) Taylor rules are presented in Table 1. The original and smoothed rules use the four-quarter PCE inflation rate as a measure of inflation. The forward-looking and modified rules use the forecasted value of four-quarter PCE inflation three quarters hence from the Survey of Professional Forecasters. Two estimates are constructed for each rule. The first estimate uses the median projected longer run federal funds rate in the most recent Summary of Economic Projections as a proxy for the nominal neutral rate of interest, r_t* + π_t*. The second estimate uses the New York Fed’s Holston-Laubach-Williams estimate for the real interest rate, r_t*.

Estimates for the NGDP growth and level rules are presented in Table 2. As with the Taylor rules presented above, I construct two estimates for each rule using the Summary of Economic Projections and New York Fed’s Holston-Laubach-Williams estimate. I employ a smoothing parameter equal to 0.5 and an adjustment parameter equal to 1.0 for all four estimates.

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References

Beckworth, D., & Hendrickson, J. R. (2020). Nominal GDP targeting and the Taylor rule on an even playing field. Journal of Money, Credit and Banking, 52(1), 269-286.

Beckworth, D., & Horan, P. J. (2024). A two-for-one deal: Targeting nominal GDP to create a supply-shock robust inflation target. Journal of Policy Modeling, 46(6), 1071-1089.

Beckworth, D., & Horan, P. J. (2025). The fate of FAIT: salvaging the Fed’s framework. Southern Economic Journal, 91(4), 1391-1403.

Hendrickson, J. R. (2012). An overhaul of Federal Reserve doctrine: nominal income and the Great Moderation. Journal of Macroeconomics, 34(2), 304-317.

Luther, W. J. (2024). Neutral Nominal Spending and the Nominal Spending Gap. Sound Money Project Working Paper.

Taylor, J. B. (1993). Discretion versus policy rules in practice. In Carnegie-Rochester conference series on public policy (Vol. 39, pp. 195-214). North-Holland.

Tuesday, June 16

• FOMC meeting

• Industrial Production and Capacity Utilization Release

• GDPNow Update

Wednesday, June 17

• FOMC Meeting and Press Conference

• Summary of Economic Projections Release

• GDPNow Update

Recent News

Meeting expectations… The Federal Open Market Committee (FOMC) will almost certainly leave its federal funds rate target unchanged at this week’s meeting. The CME Group currently puts the odds at 96.6 percent. Many market watchers also expect the FOMC will remove reference to an easing bias in its post-meeting statement. Three regional Reserve Bank presidents dissented over the easing bias at the April meeting, and other FOMC members have said they would prefer to see it removed in the time since.

Talking points… This week’s meeting will be the first as Chairman for the recently-confirmed Kevin Warsh. And, although the Federal Reserve has a post-meeting press conference on the schedule this week, it is unclear whether that tradition will continue under Warsh’s leadership.

“If you ask me my true personal opinion right now,” Warsh said at his nomination hearing back in April, “Fed chairs and other central bankers around the FOMC, they speak quite frequently. […] I think truth-seeking is more important than repetition. If one has a press conference, one wants to deliver some important news.”

Although we take the post-meeting press conference for granted today, it is a relatively recent addition to the Fed’s communication strategy. Ben Bernanke was the first to hold regular post-meeting press conferences, beginning in 2011. Initially, they were timed with the release of the Summary of Economic Projections and, correspondingly, held just four times per year. In 2019, Jay Powell began holding press conferences after every meeting.

Prices… Inflation declined again last month, new data from the Bureau of Labor Statistics show. But it remained elevated. The Consumer Price Index grew at a continuously compounding annualized rate of 5.8 percent in May 2026, down from 8.0 percent in the prior month. CPI inflation has averaged 5.6 percent over the past six months and 4.2 percent over the past year.

Core inflation, which excludes volatile food and energy prices, declined considerably. Core CPI grew at a continuously compounding annualized rate of 2.5 percent in May 2026, down from 4.6 percent in the prior month. Core CPI inflation has averaged 3.1 percent over the past six months and 2.8 percent over the past year.

Monday, June 8

• Survey of Consumer Expectations Release

Tuesday, June 9

• GDPNow Update

Wednesday, June 10

• Consumer Price Index Release

Thursday, June 11

• Producer Price Index Release

• Financial Accounts of the United States Release

Friday, June 12

• Surveys of Consumers Release

Recent News

Employment situation… The economy added 172,000 jobs in May 2026, according to the latest release from the Bureau of Labor Statistics.

Total nonfarm payroll employment was revised up by 29,000 for March, from +185,000 to +214,000. It was revised up by 64,000 for April 2026, from +115,000 to +179,000. After taking all revisions into account, the economy added 503,000 jobs over the last year—or, roughly 42,000 jobs per month.

The labor force was 170.1 million in May 2026, up from 170.0 million in the prior month. The total number of employed persons increased from 162.6 million to 162.8 million. The total number of unemployed persons decreased from 7.4 million to 7.3 million, leaving the unemployment rate unchanged at 4.3 percent.

Prime-age employment remains strong. In May 2026, 80.8 percent of those 25 to 54 years old were employed, up from 80.7 percent in the prior month. For comparison, 80.6 percent of prime-age workers were employed in January 2020, just prior to the pandemic.

JOLTS… The number of job openings increased in April 2026, according to new data released by the BLS. There were 7.6 million openings on the last business day of the month, compared with 6.9 million in the prior month. Job openings have ticked up year-over-year. There were 7.1 million job openings on the last business day of April 2025.

According to the BLS, there were 5.1 million hires in April 2026, down from 5.5 million in the prior month. There were 5.0 million separations, down from 5.3 million in the prior month.

Within separations, there were 3.0 million quits in April 2026 (down from 3.2 million in the prior month) and 1.7 million layoffs and discharges (down from 1.9 million in the prior month).

Monday, June 1

• GDPNow Update

Tuesday, June 2

• Job Openings and Labor Turnover Survey Release

Wednesday, June 3

• Beige Book Release

• Barr Speaks at Community Development Bankers Association Peer Forum

Friday, June 5

• Jobs Report Release

Saturday, June 6

• Barr Speaks at the DC Finance Conference

• Blackout Period Begins

Recent News

Prices… Inflation declined in April but remained elevated, new data from the Bureau of Economic Analysis. The Personal Consumption Expenditures Price Index (PCEPI) grew at a continuously compounding annualized rate of 4.8 percent in April 2026, down from 8.0 percent in the prior month. It has averaged 4.7 percent annualized growth over the last six months and 3.7 percent over the last year.

Core inflation, which excludes volatile food and energy prices, also remained elevated. Core PCEPI grew at a continuously compounding annualized rate of 2.9 percent in April 2026, down from 3.5 percent in the prior month. It has averaged 3.7 percent annualized growth over the last six months and 3.2 percent over the last year.

Although much of the recent rise in inflation can be explained by the ongoing conflict in the Middle East, which has pushed up energy prices, excess demand continues to contribute to the longer run inflation problem. Nominal spending has grown at a continuously compounding annualized rate of 5.7 percent over the last year. For comparison, it averaged just 4.1 percent annualized growth over the five years just prior to the pandemic. Absent a change in total factor productivity growth, restoring nominal spending growth to its pre-pandemic rate would reduce the annual rate of inflation by 160 basis points.

Solid growth… Real gross domestic product (GDP) grew at a continuously compounding annualized rate of 1.6 percent in 2026:Q1, according to the second estimate from the Bureau of Economic Analysis released last week. It has grown 2.5 percent over the last year. For comparison, real GDP grew at a continuously compounding annualized rate of 2.5 percent over the five-year period just prior to the pandemic.

The Atlanta Fed currently estimates real GDP will grow at an annualized rate of 3.8 percent in 2026:Q2. In March, the median Federal Open Market Committee (FOMC) member projected 2.4 percent real GDP growth this year.

Waller on inflation expectations… Many FOMC members attribute the persistent above-target inflation over the last year to a series of supply shocks. At a talk in Frankfurt last week, Federal Reserve Governor Christopher Waller pointed to “multiple price shocks, starting with tariffs and followed by the current oil shock.”

The consensus view is that the Fed should look through adverse supply shocks. The change in prices associated with an adverse supply shock reflects a change in relative scarcity, and might thereby encourage people to economize on scarce resources when feasible. Moreover, an adverse supply shock will generally have a temporary effect on the price level, which will return to trend when supply recovers. The proper response, therefore, is thought to be no response at all.

Waller is now questioning that view. He worries consecutive adverse supply shocks may “interact in such a way that longer-term inflation expectations rise and inflation becomes more persistent.^”

If people know that each shock in a sequence of price shocks is transitory, then why might they expect average inflation to increase in the future when observing this sequence of shocks? Let me give a simple example. If you flipped a coin and won a dollar each time it came up heads and lost a dollar every time it came up tails, your expected winnings from the next flip of the coin would be zero. This would still be true even if the last three coin flips came up heads. But when forming this expectation, it is assumed that the flips are independent and uncorrelated. And we all make this assumption when calculating this expectation. Expectations formed this way are based on classical probability theory—in this case, people are assumed to know the data generating process.

But what if they don’t understand it? Then they must make a judgment on a probability that may only be based on limited information. This is where Bayesian updating comes into play. In a nutshell, Bayesian updating adjusts the perceived probability of an event happening based on the history of past shocks. To illustrate how this works, if someone saw three heads come up in a row, they might infer that the coin flips are not independent and are, in fact, positively correlated. The source of the positive correlation is unclear, but it is what they believe. So, based on observing three heads in a row, you would put more than a 50 percent probability weight on a coin turning up heads on the next flip and your expected winnings would go up, not stay at zero.

Waller said the “Bayesian view may apply to inflation expectations as well.”

If people do not know the true inflation generating process and see a sequence of positive price shocks, they may infer that the next price shock is more likely to be positive than negative. This view can lead them to raise their inflation expectations even though they may also believe the recent shocks are transitory. A large body of research shows that Bayesian selection sometimes helps explain human behavior, and it may be relevant in judging the chances of a move upward in inflation expectations.

If people update expectations in line with the Bayesian view, policymakers may need to rethink the standard approach to dealing with supply shocks: “it may be easy to look through a single price shock such as tariffs, but it may be more risky to look through a series of positive price shocks,” Waller said.

Tuesday, May 26

• Money Stock Measures Release

Wednesday, May 27

• Cook Speaks at Stanford Institute for Economic Policy Research Policy Forum

• Jefferson Speaks Bank of Japan-Institute for Monetary and Economic Studies Conference

Thursday, May 28

• Personal Consumption Expenditures Price Index Release

• Gross Domestic Product Update

• GDPNow Update

• Williams Speaks at Reykjavík Economic Conference

Friday, May 29

• Paulson Speaks at Chamber of Commerce Southern New Jersey Event

• Bowman Speaks at Reykjavik Economic Conference

Sunday, May 31

• Waller Speaks at Dubrovnik Economic Conference

• Powell Speaks at John F. Kennedy Profile in Courage Award Ceremony

Recent News

Meet the new boss… Kevin Warsh was sworn in as chairman and a governor of the Federal Reserve Board on Friday. The Federal Open Market Committee (FOMC) then selected Warsh as its chairman, by unanimous vote.

Warsh will serve as chairman until May 2030, at which time he will be eligible for reappointment. His term as governor ends in January 2040.

Minute details… Fed officials blame the conflict in the Middle East and tariffs for the uptick in inflation, the minutes from the April FOMC meeting show:

Participants observed that overall inflation had moved up, in part because of recent global energy price increases, and remained above the Committee’s 2 percent longer-run goal. Participants generally noted that core inflation had also moved further above 2 percent. Several participants noted that the rate of increase in core goods prices remained elevated, at least in part reflecting the effects of tariffs. Some participants observed that higher fuel prices had caused a number of other prices to increase, including shipping costs and airfares. In addition to energy price increases, several participants noted that supply disruptions associated with the conflict in the Middle East had caused prices for fertilizer and some other non-energy commodities to rise. Some participants noted that recent price increases in the information technology sector had contributed to higher inflation. A few of these participants remarked that, while price increases in the software category were contributing meaningfully to the increase in core inflation, price increases in that category may not be good predictors of future overall inflation.

Looking ahead, FOMC members “anticipated that high energy prices would continue to put upward pressure on overall inflation” and “generally expected that the effects of tariffs on core goods inflation would diminish over the course of this year” so long as tariff rates are not “increased above present levels, leading to additional upward pressure on inflation.”

The usual supply-driven inflation story maintains that prices rise more rapidly as output slows. But FOMC members “generally observed that economic activity appeared to be expanding at a solid pace,” as well.

Most participants noted that business fixed investment remained robust, largely reflecting strength in the technology sector. Participants generally observed that consumer spending had been resilient. Many participants pointed to specific factors that were supporting consumer spending, including high levels of household wealth and fiscal policy. Some participants commented that higher energy prices were putting strains on households, particularly lower-income households. Several participants noted that consumer sentiment had been low. With regard to the agricultural sector, a few participants remarked that high fuel and fertilizer prices were headwinds for farmers.

Moreover, FOMC members “generally anticipated that the pace of real GDP growth would remain solid this year.”

Despite casting the inflation as largely supply-driven, FOMC members “generally judged that the continued elevated inflation readings together with uncertainty related to the duration and economic implications of the Middle East conflict could necessitate maintaining the current policy stance for longer than previously anticipated.” There was somewhat less agreement about whether rates would next move up or down.

Several participants highlighted that it would likely be appropriate to lower the target range for the federal funds rate once there are clear indications that disinflation is firmly back on track or if solid signs emerge of greater weakness in the labor market. A majority of participants highlighted, however, that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2 percent.

Given the potential for near-term rate hikes, “many participants indicated that they would have preferred removing the language from the postmeeting statement that suggested an easing bias regarding the likely direction of the Committee's future interest rate decisions.” Indeed, three members—Reserve Bank Presidents Beth Hammack (Cleveland), Neel Kashkari (Minneapolis), and Lorie Logan (Dallas)—opposed the easing bias so much that they registered dissents over its inclusion in the statement.

Governor Stephen Miran also dissented, preferring to cut the federal funds rate target by 25 basis points.

Tuesday, May 19

• Waller Speaks at International Research Forum on Monetary Policy

• Paulson Speaks at Financial Markets Conference

Wednesday, May 20

• FOMC Minutes Release

• Barr Speaks at Financial Health Network’s EMERGE Financial Health Conference

Thursday, May 21

• GDPNow Update

Friday, May 22

• Surveys of Consumers Update

• Waller Speaks at Centre for Central Banking Event

Recent News

Out with the old… Jerome Powell’s term as Federal Reserve Chair ended on Friday. He is widely lauded for steering the economy through the pandemic, bringing down inflation without causing a recession, and defending the Federal Reserve’s independence. But Powell’s record is somewhat mixed.

Under Powell’s leadership, the Fed prevented a deep recession. But it was slow to spot the surge in demand in 2021 and slow to adjust policy once noticing. It also failed to bring inflation back down to target.

Powell initially did little to abate the Fed’s mission creep into politically-charged areas like social justice and climate policy. But the Fed has taken a step back in both areas over the last 16 months.

Whereas Powell has publicly resisted pressure from President Trump, some believe he delayed tightening in late 2021 and early 2022 in order to secure another term as chair. His decision to stay on as governor after the Department of Justice dropped its criminal investigation also appears political.

What can one say about Powell’s legacy at the Fed? It could have been better. It could have been worse.

In with the new… The Senate confirmed Kevin Warsh for the top spot at the Fed last week in a near party-line vote. All Republicans voted to confirm. All Democrats save two voted against: Sen. John Fetterman (D-PA) voted to confirm, Sen. Kirsten Gillibrand (D-NY) didn’t vote.

Powell will serve as acting leader until Warsh is officially sworn in.

Prices… Inflation declined last month but remained elevated, new data from the Bureau of Labor Statistics show. The Consumer Price Index grew at a continuously compounding annualized rate of 7.7 percent in April 2026, down from 10.3 percent in the prior month. CPI inflation has averaged 4.7 percent over the past six months and 3.7 percent over the past year.

Core inflation, which excludes volatile food and energy prices, surged. Core CPI grew at a continuously compounding annualized rate of 4.5 percent in April 2026, up from 2.3 percent in the prior month. Core CPI inflation has averaged 2.8 percent over the past six months and 2.7 percent over the past year.

Production… Industrial production increased 0.7 percent in April 2026, new data from the Fed show. Industrial production was 1.3 percentage points higher than its year-earlier level. It was 1.4 percentage points higher than it was in January 2020, just prior to the pandemic.

Capacity utilization was 76.1 percent in April, up from 75.7 in the prior month. It was roughly unchanged from its year-earlier level and 3.3 percentage points below its long-run average.

Tuesday, May 12

• Consumer Price Index Release

• Goolsbee Speaks at Greater Rockford Chamber of Commerce

• Williams Speaks at Swiss National Bank and International Monetary Fund Conference

Wednesday, May 13

• Producer Price Index Release

• Kashkari Speaks at St. Paul Area Chamber Event

Thursday, May 14

• GDPNow Update

• Hammack Speaks at Cleveland Fed Event

• Williams Speaks at the Conference of Business Economists

• Barr Speaks at Money Marketeers Event

Friday, May 15

• Industrial Production and Capacity Utilization Release

• Survey of Professional Forecasters Release

Recent News

Employment situation… The economy added 113,000 jobs in April 2026, according to the latest release from the Bureau of Labor Statistics.

Total nonfarm payroll employment was revised down by 23,000 in February, from -133,000 to -156,000. It was revised up by 7,000 for March 2026, from +178,000 to +185,000. After taking all revisions into account, the economy added 251,000 jobs over the last year—or, roughly 21,000 jobs per month.

The labor force was 170.0 million in April 2026, down nearly 0.1 million from the prior month. The total number of employed persons decreased from 162.8 million to 162.6 million. The total number of unemployed persons increased from 7.2 million to 7.4 million, leaving the unemployment rate unchanged at 4.3 percent.

Prime-age employment remains strong. In April 2026, 80.7 percent of those 25 to 54 years old were employed, which was unchanged from the prior month. For comparison, 80.6 percent of prime-age workers were employed in January 2020, just prior to the pandemic.

JOLTS… The number of job openings was roughly unchanged March 2026, according to new data released by the BLS. There were 6.9 million openings on the last business day of the month. Job openings have declined slightly over the last year. There were 7.0 million job openings on the last business day of March 2025.

According to the BLS, there were 5.6 million hires in March 2026, up from 4.9 million in the prior month. There were 5.4 million separations, up from 5.0 million in the prior month.

Within separations, there were 3.2 million quits in March 2026 (up from 3.0 million in the prior month) and 1.9 million layoffs and discharges (up from 1.7 million in the prior month).

Survey says… Consumers continue to expect above-target inflation, according to the New York Fed’s latest Survey of Consumer Expectations. Median year-ahead inflation expectations were 3.6 percent in April 2026, up from 3.4 percent in the prior month. Year-ahead inflation expectations peaked in June 2022 at 6.8 percent, and have hovered at or above 3.0 percent since December 2023. But they have ticked up over the last two months.

Consumers expect 3.1 percent inflation per year over the next three years and 3.0 percent inflation per year over the next five years.