Inflation Pressures Are Easing but Rate Cut Forecast Remains Uncertain

The New Year is beginning where the old one ended -- with uncertainty about when – or whether – the Federal Reserve will begin cutting interest rates.

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Three years into what is supposed to be a continuing and strengthening housing recovery, some analysts are still wondering if it is sustainable. Recent economic reports have done nothing to dispel those concerns.

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Economic reports continued to create a good news-bad news dialectic in November, appending “yes, but” caveats to positive reports, and challenging downward trends with evidence of recovery in other indicators. The fairly even distribution of pluses and minuses has kept optimists from getting too carried away and prevented pessimists from becoming too discouraged – or perhaps just confused everyone about what’s happening in the economy.

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The December employment report was ugly – only 74,000 new jobs added for the month. That was well below the 180,000 analysts were expecting, the slowest rate in three years, and a reversal in what had seemed to be a steadily (if slowly) improving employment picture. The unemployment rate declined to 6.7 percent, reaching its lowest level in more than five years. But the improvement came at least in part because discouraged job-seekers have given up.

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Concerns about the economic impacts of the government shutdown were overstated, as it turned out, but not entirely without foundation.