North America Economic Research

Research evidence excerpt

North America Economic Research

e slowing around the same time. On net we

patience will prevail, we suspect some combination of signs still look for spending to slow closer to a 1.5% pace in 3Q.

of an overheating labor market and unanchoring inflation

expectations could convince the FOMC to move this year. Households may also want to rebuild saving buffers a bit.

Recently we noted the unreliable signal from the saving rate

That said, we also couldn't help but notice the greater empha- given its tendency to be revised up over time. With that being

sis placed on supply-side factors than in past Fed communica- said, we don’t want to totally ignore that, for now, the saving

tions. The statement noted the impact of the oil shock on rate data have shown a steady drop. We project that the rate

inflation, strong productivity growth, and the growth in the dipped to 2.4% in May, down from 4.9% a year ago.

workforce apace with employment. The first of these points

to a temporary lift to inflation that should soon fade (given Housing still restrictive

the reopening noted above); the second could support argu-

This week’s housing data confirmed that activity remainedments for an easing in inflation over the medium term; the

stuck in low gear through midyear. The June NAHB surveythird suggests the labor market is not overheating—indeed,

showed sentiment weakening in a month when mortgage ratesthe updated SEP showed no decline in the unemployment rate

eclipsed nine-month highs. Builders continue to rely on pricethis year. None of these arguments were made explicitly by

cuts and incentives to move inventory and attract buyers.Warsh, but potential appeals to reasons to be less hawkish

Against this backdrop, May housing starts showed weakerwere put in place.