Is this what a Goldilocks economy looks like?

With inflation slowing and jobless claims still low, the economy has eased into more favorable conditions. Third quarter GDP growth was revised higher, from 4.9% to 5.2%, on greater residential/business investment and inventory build. But this was offset somewhat by lower consumer spending. Most manufacturing measures point to slowing growth, but they are balanced by modestly higher consumer confidence, as measured by the Conference Board. Consumer expectations ticked higher, as their inflation expectations eased lower. 

The next Federal Open Market Committee meeting arrives Dec. 13., but several speakers presented their views before the mandatory information blackout period. As is typical of any committee, there is a range of views, from “the Fed has done enough” to “the Fed must be prepared to act if inflation fails to cooperate.”

For his part, Chair Jerome Powell reiterated that the weakening of inflation is welcome, but more progress must occur if the 2% target is to be hit. He said the full effects of the rate hikes have likely not been felt yet, but that the Fed remained ready to raise the federal funds rate again if it becomes appropriate. This last comment appeared intended to push back against market optimism that the Fed’s next move would be a cut and come soon. Much will be clearer after the release of its Summary of Economic Projections after the meeting.