Explainer: Charting the Fed’s Economic Data Flow by Reuters

The U.S. central bank maintained its benchmark overnight interest rate in the range of 5.25%-5.50% following its policy meeting on July 30-31. However, Federal Reserve Chair Jerome Powell has since indicated that "the time has come for policy to adjust," suggesting the possibility of rate cuts starting at the upcoming meeting on September 17-18.

The magnitude of any potential reduction—whether 25 or 50 basis points—will largely depend on economic data released before the meeting.

Key statistics being monitored by the central bank include:

Inflation
The consumer price index (CPI) recorded a modest rise of 0.2% in August, matching the previous month’s increase. This development is encouraging for the Fed, which aims to rein in inflation to its 2% target. For the year leading up to August, CPI increased by 2.5%, marking the smallest annual rise since February 2021, and down from 2.9% in July.

Excluding food and energy prices, the core CPI saw an increase of 0.3% in August, following a 0.2% gain in July, largely due to persistent high housing costs. The year-on-year core CPI also held steady at 3.2%, a factor that has led traders to raise the odds for a quarter-point rate cut at the upcoming Fed meeting to about 85%.

In late August, the personal consumption expenditures (PCE) price index, used by the Fed to guide its inflation target, showed an annual rise of 2.5% for July, consistent with June’s figures. The core PCE, which excludes food and energy, was slightly below expectations at 2.6%, remaining unchanged from the previous month.

Employment
In August, U.S. employers added 142,000 jobs, a figure lower than anticipated. Revisions from prior months reduced that estimate by 86,000 positions, leading to a three-month average of 116,000 jobs created—well below pre-pandemic levels, indicating an economic slowdown.

Meanwhile, the unemployment rate dipped to 4.2%, which may alleviate concerns regarding a rapid deterioration in the labor market or an impending recession. Average hourly wages rose 3.8% year-over-year, compared to a 3.6% increase in July, potentially complicating the Fed’s decisions later this month as officials remain cautious about ensuring inflation is fully controlled. Typically, the Fed views wage growth of 3.0%-3.5% as compatible with its inflation goal.

Job Openings
In recent months, Fed officials have shifted their primary focus from inflation to the employment market, which has begun showing signs of easing. Data from July revealed the lowest level of job openings in over three years, according to the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS). The ratio of job vacancies to unemployed individuals fell to 1.1-to-1, dipping below its average from the year prior to the pandemic.

Concerns have also emerged regarding rising layoffs, with JOLTS data indicating that layoffs reached 1.76 million in July—the highest number recorded since March 2023. The recent uptick in unemployment is largely attributed to workforce growth rather than significant job cuts until now.