Data_Note: Fed wrap up and UI claims

The gap between good hard and bad soft data remains. But the outlook has quickly deteriorated.

The Fed holds

As we expected, the Federal Reserve left their benchmark interest rate unchanged yesterday, and there were no surprises in their materials and Chair Powell’s presser. But there were still notable—in one case, highly notable—developments.

—Powell and the Fed board appear to be where the rest of us are when it comes to looking around the economic corner: Trumpian policy disruptions are clear in the soft data (surveys showing sharp, negative shifts in sentiment) but not so much yet in the hard data (jobs, GDP, real earnings). Especially given that the underlying economy as described by the hard data still looks good, the Fed can wait and watch.

—The Fed’s forecast was marked down in a mildly “stagflationary” direction: slower growth yet higher inflation. This was expected and is similar to all the other forecasts I’ve seen.

—That said, here’s the highly notable part, and for all the ink spilled on the contemplation of Fed entrails, I haven’t seen this observation picked up anywhere: I can’t recall ever ever seeing a situation wherein the deterioration in the economic outlook occurred this quickly due to an administration’s policy agenda. Powell was explicit about the extent to which the tariffs have contributed to higher uncertainty and higher inflation and slower near-term growth.

The figure below from the Fed’s materials shows how much uncertainty has spiked among FOMC participants (the folks that make the interest rate call) just since last December. The graphic on the right, for example, shows a clear shift from balanced risks to GDP growth over to downside risks.

My point is not to be partisan, though I’m fully capable of being so. While I firmly reject the argument on substantive grounds, I’ve written in many of these notes that the administration believes the economic pain they’re meting out is worth it, given the benefits on the other side (e.g., reindustrialization).

But it should not go unacknowledged that the Trump administration inherited an economy that was doing well and was expected to (i.e., forecasted) to continue generating solid growth and disinflation, with balanced risks. Their actions, in a matter of weeks, have demonstrably damaged that outlook.

Unemployment Insurance Claims

Initial UI claims, a proxy for layoffs, ticked up slightly last week, by 2,000, and continuing claims also rose, up 33,000 (right axis below). But these are noisy series, as you see below, and neither are showing evidence of accelerated layoffs or noticeable weakening in the job market.

You can see DOGE impacts in the Federal workers’ claims, but the most recent data show claims down, perhaps given reinstatements, though these data lag the overall claims (most recent data here is from 3/8). Note also that those numbers below (initial Federal claims ~1,000) are small relative to the overall job market. Which, to be clear, is not at all a dismissive comment on the damage being done by the incomparably incompetent DOGE team.

Summing up, the gap between the soft and hard data remains wide, but highly disruptive economic policy by the Trump administration has quickly lead to a deteriorating outlook as to where the economy is headed. I hope that outlook is wrong, but unless they change course, there’s a good chance it won’t be.