Highlights of the Fed's semi-annual monetary policy report
- Survey and market-based inflation expectations have risen since the end of 2020
- A surge in labor demand that has outpaced the recovery in labor supply has resulted in a jump in job vacancies and a step-up in wage gains in recent months
- Full text of the report (pdf)
Comment on inflation:
More lasting but likely still temporary upward pressure on inflation has come from prices for goods experiencing supply chain bottlenecks, such as motor vehicles and appliances. In addition, prices for some services, such as airfares and lodging, have moved up sharply in recent months toward more normal levels as demand has recovered. Both survey-based and market-based measures of longer-term inflation expectations have risen since the end of last year, largely reversing the downward drift in those measures in recent years, and are in a range that is broadly consistent with the FOMC's longer-run inflation objective.
On economic activity:
Against a backdrop of elevated household savings, accommodative financial conditions, ongoing fiscal support, and the reopening of the economy, the strength in household spending has persisted, reflecting continued strong spending on durable goods and solid progress toward more normal levels of spending on services.
I wrote earlier about surprisingly labor force participation in the US and it's something the Fed is watching closely.
The labor force participation rate (LFPR) has improved very little since early in the recovery and remains well below pre-pandemic levels. Relative to its February 2020 level, the LFPR remains especially low for individuals without a college education, for individuals aged 55 and older, and for Hispanics and Latinos. Factors likely contributing both to the incomplete recovery of the LFPR and to differences across groups include a surge in retirements, increased caregiving responsibilities, and individuals' fear of contracting COVID-19; expansions to the availability, duration, and level of unemployment insurance benefits may also have supported individuals who withdrew from the labor force. Many of these factors should have a diminishing effect on participation in the coming months as public health conditions continue to improve and as expanded unemployment insurance expires
