Bank of Japan hits pause; dissenting votes hint at incoming rate hikes

EU's Dombrovskis sees EU 2025 growth slightly above 1.1% forecast

Given large concurrent changes to trade, immigration, and tax policies as well as mixed signals from the economy, it is challenging to assess with confidence which side of our dual mandate is at greater risk: price stability or maximum employment. In this essay I describe potential answers to three important questions that I am wrestling with and explain how they inform my current view of the optimal path for monetary policy. Question 1: How can I reconcile mixed signals from the labor market and from financial markets? The labor market appears to be weakening. The last four payroll employment numbers have been especially weak, even before incorporating the benchmark revision to the data series (Figure 1). Some of this slowdown is inevitable given the sharp decline in net immigration we have seen, but Minneapolis Fed economists estimate that lower immigration can only explain one-third to at most one-half of the observed decline in job creation. Weak labor demand is likely also an important driver of lower job growth. Kashkari Says Neutral Rate Has Likely Increased To 3.1% And Fed Policy Is Not As Tight As Previously Thought, With Two More Quarter-Point Rate Cuts Expected This Year