Macro and the Federal Reserve
20 articles · 11 glossary terms
Rates, inflation, employment and growth: what the Federal Reserve actually controls, and which releases move markets.
Foundations
Start here if the subject is new.What the Federal Reserve Actually Does
The US central bank has a dual mandate and a small set of tools. Understanding what it controls directly, and what it only influences, removes most of the confusion around it.
The Federal Funds Rate
One overnight rate between banks, and the single lever from which almost every other rate in the economy is derived.
CPI: The Consumer Price Index
The best-known inflation measure and one of the highest-impact scheduled releases. What moves markets is the surprise against expectations, not the level.
The Jobs Report
Monthly employment data from two separate surveys that regularly disagree. Along with CPI it is the highest-impact scheduled release of the month.
Intermediate
Assumes the foundations above.The FOMC and the Dot Plot
Eight scheduled meetings a year set policy. The projections published at four of them are the most scrutinised chart in macro, and the most over-interpreted.
PCE: The Fed's Preferred Inflation Gauge
The measure the Federal Reserve actually targets. It differs from CPI in ways that matter, and it consistently reads lower.
Gross Domestic Product
The broadest measure of economic output. Comprehensive, and released so late that markets have usually worked out the answer already.
The Dollar and Equities
A stronger dollar mechanically reduces the reported earnings of US multinationals and tightens conditions globally. The relationship is real and it is not constant.
Oil and Commodity Shocks
Energy is an input to nearly everything, which makes a large oil move a shock that propagates through inflation, consumption and policy at once.
Which Calendar Events Actually Move Markets
Dozens of releases appear on an economic calendar each week and a handful matter. Knowing which, and why the reaction depends on the surprise, is most of the value.
ISM and PMI Surveys
Diffusion indices built from surveys of purchasing managers. They measure the breadth of change rather than its size, which is what the fifty level means.
Retail Sales
A monthly measure of spending at retailers. Consumption is most of the economy, which makes this one of the most closely watched releases and one of the noisiest.
Housing Data
A set of monthly releases covering construction, sales and prices. Housing is the most rate-sensitive part of the economy, which makes it an early indicator of policy taking effect.
Consumer Confidence and Sentiment
Surveys asking households how they feel about conditions and prospects. What people say and what they do have diverged substantially for long periods.
Fiscal Policy and Deficits
Spending and taxation decisions made by government rather than by a central bank. They affect growth directly and reach the bond market through issuance.
Other Central Banks
Policy is set in several places at once, and the differences between them drive currencies, capital flows and the conditions faced by companies operating across borders.
Advanced
Detail, edge cases and methodology.Quantitative Easing and Tightening
Buying or running off bonds to influence longer-term rates, used when the policy rate alone is insufficient. It affects the long end, which the funds rate reaches only indirectly.
Yield Curve Inversion as a Recession Signal
Short yields above long ones has preceded every modern US recession. The record is genuinely striking and the lag is long enough to make it close to useless for timing.
Money Supply
Aggregate measures of money in the economy. Their relationship to inflation is theoretically clear, empirically unstable, and the subject of a long argument.
Financial Conditions Indices
Composites combining rates, spreads, equity prices and the currency into a single measure of how easy it is to obtain financing.