Finance
Why it may not be fair to say Fed made inflation 'mistake'
A version of this post first appeared on TKer.co
In the context of inflation, was the Federal Reserve late to ? Most would agree the answer is yes.
But the Fed doesn’t have just one mandate of promoting price stability. It has a of promoting both price stability and maximum employment.
Taking employment into consideration, that the Fed was late to tighten monetary policy.
I can’t pinpoint exactly when the calls to tighten began when inflation was heating up three years ago. But we can all agree that these calls grew loudest ahead of the .
The core PCE price index — the Fed’s preferred measure of inflation — was at a high of 5.5% in March 2022. Clearly, inflation was a problem.
That same month, the unemployment rate was 3.6%, the lowest level since before the pandemic.
The unemployment rate effectively bottomed that month, mostly trending sideways as inflation rates cooled.
What if the Fed acted earlier?
I generally don’t like considering counterfactual scenarios because the world is complex, and no one can say with certainty what would’ve actually happened in the past if certain things had gone differently. But since we continue to hear folks casually say that we would’ve been better off if the Fed acted earlier, I’ll indulge in the thought exercise.
What if the Fed hiked rates at its January 2022 meeting? Maybe our inflation mess would’ve ended a little sooner. But the unemployment rate was higher at 4%. Would we have been okay with the unemployment rate trending at 4%? Maybe.
What if we went back a little further, and the Fed hiked rates at its October/November 2021 meeting? The core PCE price index was increasing at about a 4.5% rate. Price-sensitive consumers would’ve been much happier to see inflation top out there. But the unemployment rate was higher at about 4.5%. Does the cost of keeping unemployment almost a full percentage point higher justify the benefit of keeping prices a bit cooler?
What if the Fed moved even sooner when the unemployment rate was even higher?
The big picture
Here’s my point: While it’s fair to argue the Fed hiked rates too late in the context of inflation, I don’t think it’s fair to argue they made a mistake — especially when you consider the goals of monetary policy in their entirety, which include promoting maximum employment.
While high inflation is a headache for consumers, at least some of it was the result of newly employed people finally being able to afford to purchase goods and services.
Like I said before, the world is complex. So who knows? Maybe there’s a scenario where the Fed tightened monetary policy sooner and the unemployment rate continued to fall anyway as inflation cooled.
But the likely outcome of tighter monetary policy earlier in this economic cycle would have been unemployment bottoming at a higher level than what we’ve experienced.
I’m not suggesting the Fed was right or wrong to adjust monetary policy when it did. I’m just saying that you cannot talk about how monetary policy actions affect inflation without addressing how they affect employment.
How about instead of proclaiming that the Fed was late in the context of inflation — which is not a controversial view — we instead tackle the of how we balance the tradeoff between price stability and employment. How many people is it okay to leave unemployed if it means improving price stability?
The state of play
Over the past two and a half years, . And while the unemployment rate remains low by historical standards, it has been .
Last month when the unemployment rate was 4.3%, : “We do not seek or welcome further cooling in labor market conditions.“
“The time has come for policy to adjust,” he . It was one of the more explicit signals that rate cuts would begin soon, a development most market participants welcome.
Of course, there are also voices brushing off the rise in unemployment as they argue that the Fed should wait longer until inflation is defeated more definitively.
Reviewing the macro crosscurrents
There were a few notable data points and macroeconomic developments from last week to consider:
The labor market continues to add jobs. According to the report released Friday, U.S. employers added 142,000 jobs in August. It was the 44th straight month of gains, reaffirming an economy with growing demand for labor.
Total payroll employment is at a record 158.8 million jobs, up 6.4 million from the prepandemic high.
The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — declined to 4.2% during the month. While it continues to hover near 50-year lows, the metric is near its highest level since October 2021.
While the major metrics continue to reflect job growth and low unemployment, the labor market isn’t as hot as it used to be.
Wage growth ticks up. Average hourly earnings rose by 0.4% month-over-month in August, up from the 0.2% pace in July. On a year-over-year basis, this metric is up 3.8%, near the lowest rate since June 2021.
Job openings fall. According to the , employers had 7.76 million job openings in July, down from 7.91 million in June. While this remains slightly above prepandemic levels, it’s from the March 2022 high of 12.18 million.
During the period, there were 7.16 million unemployed people — meaning there were 1.07 job openings per unemployed person. Once a sign of , this telling metric is now below prepandemic levels.
Layoffs remain depressed. Employers laid off 1.76 million people in July. While challenging for all those affected, this figure represents just 1.1% of total employment. This metric continues to trend near pre-pandemic low levels.
Hiring activity continues to be much higher than layoff activity. During the month, employers hired 5.52 million people, up from 5.25 million in June.
People are quitting less. In July, 3.28 million workers quit their jobs. This represents 2.1% of the workforce. While up from the prior month, it remains below the prepandemic trend.
A low quits rate could mean a number of things: more people are satisfied with their job; workers have fewer outside job opportunities; wage growth is cooling; productivity will improve as fewer people are entering new unfamiliar roles.
Labor productivity inches up. From the : “Nonfarm business sector labor productivity increased 2.5% in the second quarter of 2024… as output increased 3.5 percent and hours worked increased 1.0%. … From the same quarter a year ago, nonfarm business sector labor productivity increased 2.7%.”
Unemployment claims ticked lower. declined to 227,000 during the week ending August 31, down from 232,000 the week prior. While this metric continues to be at levels historically associated with economic growth, recent prints have been trending higher.
Card spending data is stable. From Bank of America: “Total card spending per household was up 2.8% y/y in week ending Aug 31, according to BAC aggregated credit & debit card data. This increase was likely driven by the change in the timing of Labor Day compared to last year (09/02/24 versus 09/04/24). Within sectors, furniture saw the biggest increase since last week, while entertainment showed the largest decline.”
Gas prices fall. From : “After idling over the Labor Day weekend, the national average for a gallon of gas resumed its pace of daily declines by falling six cents since last week to $3.30. Key contributors are low gas demand and the plunging cost of oil, which is struggling to stay above $70 a barrel.”
Mortgage rates hold steady. According to , the average 30-year fixed-rate mortgage stood at 6.35% this week. From Freddie Mac: “Even though rates have come down over the summer, home sales have been lackluster. On the refinance side however, homeowners who bought in recent years are taking advantage of declining mortgage rates in order to lower their monthly payments.”
There are in the U.S., of which 86 million are and of which are . Of those carrying mortgage debt, almost all have , and most of those mortgages before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to movements in home prices or mortgage rates.
Construction spending ticks lower. declined 0.3% to an annual rate of $2.16 trillion in July.
Services surveys look up. From S&P Global’s : “An improvement in the headline services PMI to its highest for nearly two-and-a-half years provides further encouraging evidence that the US economy is enjoying robust economic growth in the third quarter, adding to signs of a ‘soft landing’. The faster service sector expansion means the PMI surveys are signalling GDP growth of 2-2.5% in the third quarter. At the same time, the August survey data signaled a further cooling of selling price inflation, notably in the service sector, which has now eased close to the average seen prior to the pandemic and a level consistent with the Fed’s 2% inflation target.”
Manufacturing surveys don’t look great. From S&P Global’s : “A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter. Forward-looking indicators suggest this drag could intensify in the coming months. Slower than expected sales are causing warehouses to fill with unsold stock, and a dearth of new orders has prompted factories to cut production for the first time since January. Producers are also reducing payroll numbers for the first time this year and buying fewer inputs amid concerns about excess capacity.”
Similarly, the ISM’s signaled contraction in the industry.
Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than hard data.
Factory orders jump. According to the , new orders for manufactured goods rose 5% to $592.1 billion in July.
Key recession indicators point to growth. Here’s a from economist Justin Wolfers tracking the trajectory of key measures of economic activity.
Near-term GDP growth estimates remain positive. The sees real GDP growth climbing at a 2.1% rate in Q3.
Putting it all together
We continue to get evidence that we are experiencing a where inflation cools to manageable levels .
This comes as the Federal Reserve continues to employ very tight monetary policy in its . Though, with inflation rates having from their 2022 highs, the Fed has taken a less hawkish tone in , even signaling that .
It would take monetary policy as being loose, which means we should be prepared for relatively tight financial conditions (e.g., higher interest rates, tighter lending standards, and lower stock valuations) to linger. All this means for the time being, and the risk the into a recession will be relatively elevated.
At the same time, we also know that stocks are discounting mechanisms — meaning that .
Also, it’s important to remember that while recession risks may be elevated, . Unemployed people are , and those with jobs are getting raises.
Similarly, as many corporations . Even as the threat of higher debt servicing costs looms, give corporations room to absorb higher costs.
At this point, any given that the .
And as always, should remember that and are just when you enter the stock market with the aim of generating long-term returns. While , the long-run outlook for stocks .
A version of this post first appeared on TKer.co
Before seeking a new referendum MPS needs to rebuild trust in the community through completing state audits, putting in place controls to prevent overspending and routine reports to the public.
For MPS Superintendent Brenda Cassellius, who just wrapped up her first year leading Milwaukee’s public school system, her tenure has been punctuated by some very big numbers.
The first is $252 million. That is the amount of new spending voters narrowly approved in an April 2024 referendum to support operations in Wisconsin’s largest school district. Just months later, MPS was rocked by revelations the district was months behind in filing key financial reports to the state, which led to former Superintendent Keith Posley’s resignation.
The second is $1 billion. MPS faces a deferred maintenance backlog exceeding $1 billion. The district’s enrollment has declined 30% over the last 30 years, leaving many schools at less than 50% full. That, in part, is driving a plan to close some schools and to improve others to help lower costs.
The final is $46 million, the deficit MPS was running for the 2024-25 school year, an unexpected shortfall which has led to hundreds of staff layoffs.
Getting the district’s accounting, budgeting and financial reporting back on track has dominated Cassellius’s first year at MPS. In an April 15 interview with the Journal Sentinel’s editorial board, she talked in detail about the challenges putting that into order and progress she sees in restoring transparency into its operations.
State funding and aging buildings create budget nightmares
Cassellius says state needs to keep up its share of school funding
In an interview with the Journal Sentinel editorial board, MPS leader Brenda Cassellius says budgets and buildings are her two top worries.
Cassellius said the on-going budget crisis is her top concern. She said the state’s failure to live up to its share of funding is exacerbating MPS’ budget woes. A group of school districts, teachers and parents filed suit against the state Legislature and its Joint Finance Committee claiming the current state funding system is unconstitutional and prevents schools from meeting students’ educational needs.
Funding for special education is especially critical. About 20% of MPS students have disabilities, almost twice the share of the city’s charter schools, and the average of 14% across Wisconsin.
“What’s keeping me up now, you know, is really just the budget crisis we’re in, with not only this year but multiple years going out without additional state aid, we’ve been not getting funding for what our needs are for our students, and particularly our students with special needs,” she said.
Although the state budget increased special education funding to a 42% reimbursement rate, the actual rate has been about 35%. Another component to the budget headache is the age of MPS buildings. The average age is 85 years-old compared to 45 across the nation.
“We have just kicked this can down the curb or kicked it down the street or whatever you call it for too long. And it’s time that we really take on a serious conversation about the conditions of the learning environments in which we send our children,” she said. “Particularly in Milwaukee Public Schools, we serve the most vulnerable children. Children who have language barriers, children who have disabilities, children in high-concentrated poverty.”
What needs to happen before MPS seeks another referendum
Voters need to be comfortable MPS has made tough budget decisions
In an interview with Journal Sentinel editorial board, Brenda Cassellius said voters will need to see budget improvements before seeking more spending
Cassellius said MPS will definitely need to go back to voters for a new referendum in the future. In addition to the 2024 measure, voters approved an $87 million plan in 2020.
Before doing that, she said the district first needs to rebuild trust in the community through completing required state audits, putting into place controls to prevent overspending and routine reports to the school board and public about finances.
“I don’t think that the voters are going to want us to bring something forward until they feel comfortable that we have done the cleanup that is necessary,” she said. “And we’ve built the trust that we have the sufficient controls in place.”
In the interim, she’s hoping the state will meet its constitutional responsibility to adequately fund public schools.
“What the public expects is you know where the money is, you’re spending it as close as you can to children, you’re getting good on the promise around art, music, and PE, and the things the public said they wanted to fund,” Cassellius said. “And they want their kids to have so that they have a quality education and an excellent education in Milwaukee Public Schools, and that they had the right amount of staff that they actually need. In the school to be safe and to run a good operation.”
Rebuilding finance staff in wake of $46 million in overspending
MPS is rebuilding school finance staff in wake of reporting lapses
In an interview with the Journal Sentinel editorial board April 15, MPS superintendent discusses accountability for district’s financial problems.
The $46 million budget shortfall from the 2024-25 school year started coming into view last fall and was confirmed in mid-January. Cassellius noted that in addition to hiring a new superintendent, MPS also parted ways with its comptroller and CFO.
“We are really rebuilding the personnel and staff of the finance department. That is what’s critical, is having the right people in the right seats doing the work,” she said. “Also critical is making sure that you have the right controls in place. The audit findings found that we did not have proper controls in place and now we have those proper controls in place and when we find things we put new SOPs in place and that is what any business does.”
Identifying that shortfall, though painful, was the result of better accounting.
“Being three years behind in auditing means that you don’t have full sight on your actual revenues and expenditures. And so we have now full sight of our revenues and our expenditures and that’s why we were able to see this new deficit of $46 million,” she said. “And we still continue to work with DPI on those processes to make sure that every month we’re doing monthly to actuals and doing those accounting, reporting that to the board. In a way that is consumable to the public that they can understand.”
Jim Fitzhenry is the Ideas Lab Editor/Director of Community Engagement for the Milwaukee Journal Sentinel. Reach him at jfitzhen@gannett.com or 920-993-7154.
Property markets move in cycles, and with interest rates rising and other pressures like high fuel costs, some markets are clearly slowing down. Many first-home buyers who have only ever seen markets going up are conditioned to think that when purchasing, competition is always intense and decisions need to be made quickly.
In those times, buyers often feel they need to act fast, stretch their budget and secure a property at almost any cost. But things have definitely changed.
In a softer market, the dynamic shifts. Properties take longer to sell, competition thins, and it’s the vendors who begin to feel pressure.
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For buyers who understand how to navigate that change, the balance of power quickly moves in their favour. The opportunity is not simply to buy at a lower price. It is to negotiate from a position of strength.
If that’s you right now, these are the key skills first-home buyers need to take advantage of in softer market conditions.
The most important shift in a soft market is psychological. In a rising market, buyers often feel like they are competing for limited opportunities. In a softer market, the opposite is true. There are more properties available, fewer active buyers and less urgency overall. This gives buyers options.
When buyers understand that they are not competing with multiple parties on every property, their decision-making improves. They are more willing to walk away, compare opportunities and avoid overpaying. Negotiation strength comes from not needing to transact immediately. When that pressure is removed, buyers are able to engage more strategically.
One of the most common mistakes first-home buyers make is continuing to apply strategies that only work in rising markets. Auction urgency is a clear example. In strong markets, auctions often attract multiple bidders and create competitive tension. In softer conditions, properties are more likely to pass in, shifting the process away from a public bidding environment into a private negotiation.
This is where leverage increases.
Private negotiations allow buyers to introduce conditions that protect their position. These may include finance clauses, longer settlement periods or price adjustments based on due diligence. Opportunities that are rarely available in competitive markets become standard in softer ones.
The Board of Visitors Finance Committee met Thursday and approved a 3.6 percent average increase in tuition, a 4.8 percent average increase in meal plan costs and a 5 percent increase in the cost of double-room housing for the 2026-27 school year. The approval was unanimous amongst Board members, though some expressed resistance to the increases before voting in favor of them.
The Committee heard from Jennifer Wagner Davis, executive vice president and chief operating officer, and Donna Price Henry, chancellor of the College at Wise, about reasons for the raise in tuition and rates. According to Davis and Henry, salary increases for professors and legislation passed by the General Assembly contribute to tuition and rates increases.
The Finance Committee, chaired by Vice Rector Victoria Harker, is responsible for the University’s financial affairs and business operations, and the Committee manages the budget, tuition and student fees.
Changes in tuition vary between schools, with the School of Law seeing at most a 5.1 percent increase, the School of Engineering & Applied Science seeing at most a 3.2 percent increase and the College of Arts and Sciences seeing at most a 3.1 percent increase in tuition for the 2026-27 school year.
For the 2026-27 school year at the College at Wise, the Committee also unanimously approved a 2.5 percent average increase in tuition, a 3.8 percent increase in meal plans and a 2 percent increase in the cost of housing.
Last year, the Committee approved a 3 percent average increase in tuition, a 5.5 percent increase in meal plans and a 5.5 percent increase in the cost of housing for the University.
Davis cited increased costs as the primary reason for the approved increase in tuition. She said that the budget that could be passed by the General Assembly for June 30, 2027 through June 30, 2028 could increase professor salaries — University professors receive raises via this process. Davis said that the Senate and House of Delegates have separate proposals dealing with the pay increases that are currently unresolved, with House Bill 30 raising salaries by 2 percent and Senate Bill 30 raising salaries by 3 percent.
Davis said every percent increase in faculty salaries costs the University $15 million annually, and the Commonwealth will increase funding to the University by $1-2 million to help pay for that increase. According to Davis, the most common way to stabilize the budgetary imbalance caused by raised salaries is through tuition raises.
Beyond the increase in salary, Davis cited the minimum wage increase, inflation and Virginia Military Survivors & Dependents Education Program as increased costs to the University. VMSDEP is a program that gives education benefits to spouses and children of disabled veterans or military service members killed, missing in action or taken prisoner. Davis said that the program is “partially unfunded” and could cost the University somewhere between $3.6 to $6 million, depending on how many students qualify for the program.
Davis spoke on other contributing factors to the increase in tuition, specifically collective bargaining — which allows workers to bargain for better wages and working conditions.
“If we look at other institutions or other states that have collective bargaining, [collective bargaining] does put an upward pressure on tuition,” Davis said.
Prior to Thursday’s meeting, the Committee heard the proposal for tuition increases from Davis and Henry April 6 in a Finance Committee tuition workshop with public comment. During the tuition workshop, tuition increases ranged from 3 to 4.5 percent for the University and 2 to 3 percent for the College at Wise. Both increases approved Thursday are within the ranges originally proposed.
Meal plan costs, on average, will be increasing by 4.8 percent in the upcoming academic year. Davis said that the University has been expanding dining options with the opening of the Gaston House and new locations for the Ivy Corridor student housing that is still in progress. She also said that the University has been taking steps to increase the availability of allergen-friendly food options.
Davis shared that the 5 percent cost increase in housing is due to the expansion of student housing in the Ivy Corridor. Davis also said that there will be 3,000 new units added to the Charlottesville housing market by 2027, of which 780 beds will be for University housing. Davis said that she hopes the Ivy Corridor housing would “free up” the city housing supply by having more students live on Grounds.
Board member Amanda Pillion said she was “concerned” about how tuition increases would harm rural families — she said the constant increases in cost could make a University education out of reach for middle-income Virginians.
“This is the second governor I’ve served under. Both times I’ve heard affordability, affordability, affordability,” Pillion said. “We need to really be conscious of the fact that … there is a large group of people that [are middle-income] that these increases [in tuition and fees] are really tough for.”
The Committee also approved a renovation for The Park — an 18-acre recreational hub in North Grounds — which will cost $10 million. As part of the renovation, The Park will include a maintenance facility, storm water systems and a maintenance access route. Davis said the renovation will address safety and security issues for the 200 people that use The Park daily. According to Davis, the University will use $2 million of institutional funds and issue $8 million of debt to fund the renovation.
The Finance Committee will reconvene during the regularly scheduled June Board meetings.
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