MORE ABOUT THE FED’S UPCOMING DECISION

 

This blog post is at least in part a follow up to my May 16 post, “A Difficult Decision for the Fed” (Hartman 2026). Much attention will be devoted to what the Federal Open Market Committee (FOMC) of the Federal Reserve Bank will decide to do at its upcoming meeting on June 16 and 17 regarding its target for the federal funds rate and what it may signal about its future plans.  For those not familiar, the federal funds rate is the interest rate that one bank charges another bank on an overnight loan. 

Obviously, the Federal Open Market Committee (FOMC) of the Federal Reserve Bank has three general categories of options in terms of what it will do with its target for the federal funds rate. The FOMC can decide to increase its target for the federal funds rate, keep the target where it is, or lower its federal funds rate target. Given that I seem to remember that the CPI inflation was recently announced to have hit a three or four year high, it seems less and less likely, though perhaps still possible, that the FOMC will vote for a rate cut at its upcoming meeting. The Fed is responsible for trying to keep prices stable, and lower interest rates would probably cause prices to rise even more.

However, although the May 2026 jobs report from the US Bureau of Labor Statistics (BLS) appears more favorable than the April 2026 report, at least three of the four measures continue to show possible problems in the labor market in the US.  In terms of good news, the seasonally adjusted data from the establishment survey based on responses from workplaces show US total nonfarm payroll employment probably at an all-time high in May 2026, having increased by approximately 170,000 jobs from April 2026. Also along those lines, the not seasonally adjusted data from the establishment survey from May 2026 show a gain of about 740,000 jobs from the previous month and above its level from May 2025. Further good news comes from the household survey, both seasonally adjusted and not seasonally adjusted. The estimates based on surveys of US households report that employment increased by about 120,000 jobs when not seasonally adjusted and by about 150,000 jobs when seasonally adjusted.

But as alluded to above, the establishment survey for data not seasonally adjusted and the household survey both adjusted and unadjusted seasonally show some signs for concern. Total nonfarm payroll employment from the establishment survey from May 2026 when not seasonally adjusted remains about 100,000 jobs below its level from November 2025.  Additionally, the household survey seasonally adjusted is below its level from May 2025 and it is below its level from December 2025 by about 1.2 million jobs.  When not seasonally adjusted, the household survey results were roughly 500,000 below May 2025 and more than 1 million below November 2025.  I count at least 14 months from the seasonally adjusted household survey and at least 9 months from the household survey not seasonally adjusted when US employment was greater than its level from May 2026. Although the May 2026 statistic for the not seasonally adjusted estimate for total nonfarm payroll employment was at its second greatest value at about 159.5 million, there were at least six months not at the all time high in either 2024 or 2025 when the estimates were at least 159.0 million.

The Fed is responsible not only for trying to achieve price stability.  The Fed is also responsible for promoting employment growth. As mentioned in my previous blog post and as many others have noted, policymakers have a tradeoff when faced with a negative aggregate supply shock, and the US may have one soon if it does not face one presently.

Also, if I am looking at the BLS seasonally adjusted estimates for the monthly CPI correctly, then the seasonally adjusted US CPI for all urban consumers in May 2026 rose more slowly than in March 2026 or April 2026. The CPI increased from about 330.3 to about 332.4 between March and April of 2026, an increase of a little more than two units.  However, from April to May of this year, the increase was about 1.6 units (and a smaller percentage), from roughly 332.4 to roughly 334.0.  Although the inflation rate is certainly still a concern, is there a case to be made at least for keeping the federal funds rate constant?

Will policymakers be able to reduce inflation to the targeted rate of (around) 2 per cent per year?  Will they have to use tighter monetary policy to do it?  Will tighter monetary policy lead to a recession?  Given the dual mandate of price stability and full employment, what will policymakers do if (more) jobs are lost?

Please note that subsequent data revisions may change at least some of the statistics, analysis, and/or conclusions.  Thanks.

REFERENCES AND SOURCES

Hartman, Harrison C.  (2024) “A Difficult Decision for the Fed.” Posted May 16, 2026 at https://harrisonhartman.blogspot.com/2026/05/a-difficult-decision-for-fed.html .

U.S. Bureau of Labor Statistics, Consumer Price Index (All Urban Consumers), accessed from https://www.bls.gov/news.release/cpi.nr0.htm, June 12, 2026.

U.S. Bureau of Labor Statistics, All Employees, Total Nonfarm [PAYEMS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/data/PAYEMS, June 12, 2026.

U.S. Bureau of Labor Statistics, All Employees, Total Nonfarm [PAYNSA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/data/PAYNSA, June 12, 2026.

U.S. Bureau of Labor Statistics, Employment Level [CE16OV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/data/CE16OV, June 12, 2026.

U.S. Bureau of Labor Statistics, Employment Level [LNU02000000], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/data/LNU02000000, June 12, 2026.

U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items in U.S. City Average [CPIAUCSL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/data/CPIAUCSL, June 12, 2026.