US Economic Weekly: Tinker Taylor, Labor, and Supply

BofA argues that while Taylor Rule models indicate US monetary policy is 100bp too loose, the Fed's dovish bias and focus on 'looking through' supply shocks like tariffs keep rates on hold. Hikes are only likely if the unemployment rate drops toward 4.0%.

Key Takeaways

• 1.Taylor Rule models suggest US policy is currently 100bp too loose based on core PCE inflation, though this gap vanishes when excluding tariff impacts.
• 2.The FOMC remains fundamentally dovish and is unlikely to hike rates unless the labor market tightens significantly, specifically with the unemployment rate falling to ~4.0%.
• 3.US GDP tracking for 2Q has been lowered to 2.5%, and 1Q GDP was revised down to 1.6%, primarily due to softer consumer services spending.

Table of Contents

• US Economic Weekly
• Tinker Taylor, Labor, Supply
• What is the Taylor Rule?
• Some wonkish details
• Time to hike?
• Not so fast
• Iran might be one supply shock too many...
• ...But labor has greater propensity to trigger hikes
• US GDP tracking
• Data in the past week
• Data in the week ahead
• Federal Reserve Speakers
• Weekly spending update
• Core views
• Economic forecast summary
• Rates and dollar forecasts
• Rolling calendar of business indicators
• CPI and PCE Forecast tables
• Federal Reserve Balance Sheet

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