Summary
Uncertainty reflected by both Fed officials and markets over tightening policy has become ultra-low. The Fed is transitioning away from not only financial stability concerns, but also employment in general. The consumer’s ability to remain healthy and spend will dictate policy.
Comment
The Fed minutes for the May 2018 meeting contained the heaviest usage of words concerning economic strength in its history back to 1994. Officials are not fearing an over-heating economy, but very comfortable with the pace of growth.
We turn to all Fed communications including speeches, statements, minutes, and testimonies in the charts below. Disagreements among officials have seemingly plummeted since peaking May 2017. The chart below counts the number of words like arguing, disagreement, and contention.
We have previously shown a dramatic shift in focus from financial stability concerns to inflation around 2015. Additionally, the Fed’s intense focus on employment (second panel) has greatly diminished while discussions about the consumer and their spending (top panel) have appreciably risen. We can debate whether or not the U.S. has reached full employment, but the onus has been on translating to improved wages and consumer comfort.
Our focus has also transitioned to assessing consumer stress and spending using Google search trends. The chart below shows the six-month changes in search trends for bankruptcy, default, food stamps, and payday loans. The rebound in these stress-revealing searches recently reached the highest since 2008.
We believe a lack of wage growth and consumer spending may become the biggest impediment to the Fed’s hopes for consistent tightening through 2019.
