Getting a Pulse Check on the U.S. Economy

The Federal Reserve Bank of the U.S. announced June 14 it would be raising interest rates   yet again, lifting the benchmark federal lending rate from a target of 1 percent to 1.25 percent, according to Reuters. After years of historically low rates, this and other actions announced by the Fed June 14 signaled renewed confidence in the U.S. economy as a whole. However, questions remain in particular economic measures, and there is still some uneasiness among American business owners and consumers.

To understand the context of the latest Fed rate hike and its likely implications, it helps to understand the stories behind the data.

"US hiring has now increased for 80 months in a row."

In the run-up to the June rate hike, general economic figures like growth in gross domestic product and unemployment were very strong. Ben Casselman of news analysis blog FiveThirtyEight reported that, with U.S. employers having added 211,000 jobs in April, the nation had logged a record 79 months in a row   of net job gains. As a result, the unemployment rate fell to 4.4 percent, the lowest in almost a decade, while average hourly wages rose, too.

Casselman reported that this streak continued in May  , but with some caveats. While another 138,000 jobs had been added that month, the total labor force declined by more than 400,000 with a new wave of baby boomers retiring. In addition, earnings growth on an annual basis remained stagnant. Casselman noted that on the basis of these numbers, the Fed might consider delaying the June rate increase.

Inflation concerns

While the rate hike still went forward despite this uncertainty, commentators found points of contention with the Fed's latest policy outlook. The Wall Street Journal noted that financial experts were particularly concerned about inflation   and what some consider to be the Fed's questionable response to it. While most consumers may be somewhat familiar with inflation as a bad thing, the issue now seems to be that there is too little of it. 

The longstanding policy of the Fed has been to keep inflation as close to 2 percent per year as possible, to provide a mixture of liquidity and incentives to invest. But according to the bank's latest readings, inflation is floating around 1.5 percent, having taken a steep dive in May. In simplified terms, according to The Wall Street Journal, low inflation combined with higher interest rates has some financial experts worried that economic growth may turn out to be slower than expected. While low inflation generally means cheaper prices for consumer goods, it can cause problems for businesses that rely on bond funding, and generally provides fewer incentives for investing rather than holding onto cash.

Stock market continues winning streak

While things are looking decent in the job and bond markets, anyone invested in the stock market has continued to see very promising numbers. As Casselman and others have reported, U.S. stocks have continued to post record-high prices as part of a market rally that's continued unabated since Election Day 2016. And even that is just a slice of the impressive numbers that American equities markets have continued to post since the lowest point of the recession in mid-2009.

As always, the billion-dollar question remains: Will it last? It's impossible to predict the point at which the current stock market rally will end. But the impressive growth streak is just another piece of the puzzle when it comes to assessing U.S. economic health. In most cases, it's clear that the rosy consensus view is not unfounded. As usual, though, questions remain regarding how the market has sustained itself so far, and whether it will continue to do so for long.