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The Federal Reserve plans to do what it takes to keep inflation at bay.

Powell and other Fed policymakers are making decisions about the economy, but it could be hard for them to know where the economy actually is based on recent data that has been contradictory.

Consumer spending has not decreased and the jobless rate is at historic lows. Supplies are improving but manufacturing output is slowing down. US commerce is resuming, although Covid cases are on the rise again.

Without a clear line of sight at their target, Fed officials are still deciding whether to raise the interest rate and if they will do too much or too little.

The Fed has their hands full of “pieces that don’t fit together.” They are using a wide variety of methods to solve economic questions, with some providing better results than others.

The Fed typically chooses to raise rates if inflation is high, but it opted for a more drastic hike after a survey indicated that consumers were anticipating higher future inflation. This data was later revised and it suggested, instead, that the expectations for future inflation had not actually shifted.

There are many recent events that have hit the economy hard, making it unclear to predict what will happen. This includes the disruption from pandemic, price and supply changes that were not anticipated.

Forecasters use data, such as the economy slowing down and the unemployment rate increasing, to tell which fluctuations in data are merely blips and which ones are transformations in society.

When economic data is collected and reported, it’s not always clear. Sometimes the most accurate information comes out over time, and as new data becomes available. For a complete picture of the economy, gross domestic product (GDP) is measured using multiple data sets that are updated individually.

Despite forecasts from his own regional Fed branch predicting a decline in GDP growth, Raphael Bostic believes the economy is still strong.

There are many factors that contribute the decline of GDP, but the important information is discovered with more research. You might find that a company stockpiled goods for their back rooms, preventing from adding inventory to GDP, or the dollar strengthened against imports causing supply and demand

Christopher Waller, a central banker, said GDP numbers don’t necessarily matter.

GDP measures income by the production of goods. GDI, however, includes transactions that act as income that would not be included in GDP

Meanwhile, some important indicators are quantifiable, like industrial production. However, some other non-quantifiable indicators are trending, such as the value of technological innovation and expectations about inflation that have controversial opinions.

“All data is fragile in its own special way,” said Skanda Amarnath, executive director of worker advocacy group Employ America.

For now, Fed policymakers seem convinced that the economy is still fundamentally strong, suggesting they are leaning more heavily on data about the job market, which is generally a clearer and timelier indicator of the economy’s health as a whole. But even here, there are indications that layoffs have begun ticking up, and wage growth has begun to decelerate. On Thursday, the Labor Department reported that initial jobless claims totaled 251,000 the previous week, the highest level since mid-November.

“You have to figure out, what should I infer from this data?” said Claudia Sahm, another former Fed economist who is now a senior fellow at the Jain Family Institute. “As you get more and more pieces of data, then you look at them and you say, does that fit with my story? And if you get enough pieces of information that don’t fit, then you rewrite the story.”

One way that the Fed tries to overcome the shortcomings in data is by gathering information from a lot of different sources, said Wilcox, now an economist with the Peterson Institute for International Economics and Bloomberg Economics.

For example, information from card processor First Data can be used to pinpoint regional factors in the national retail sales figures, which provide insight into the strength of consumer spending — a key variable in forecasting inflation. The central bank also uses data from ADP, which tracks actual payroll transactions of 26 million companies, to supplement employment surveys from the Labor Department to get a larger snapshot of the job market.

ADP’s Richardson said the firm is also revamping its national employment reports to make them more frequent as well as more independent from government data; it will no longer attempt to forecast the monthly government jobs report.

Consumer sentiment surveys conducted by the University of Michigan and the Conference Board are unusually divergent. Interpreting those signals is important because declining sentiment is almost always a reliable indicator of when the economy might soon enter a recession.

“We’re in a situation where labor markets are really strong, and we’re also in a situation where inflation is really bad,” said Joanne Hsu, director of the University of Michigan survey, which has recently hit record lows.

“Our consumer sentiment index is a place where consumers are going to tell us about their complaints about inflation,” she said, while the Conference Board’s survey more heavily reflects Americans’ continued optimism about the labor market. That optimism is likely why consumer spending has remained strong even amid widespread gloom, she added.

“We’re coming out of a situation where over a million people died, and there were economic lockdowns, and we’re in a time of incredible political polarization which affects people’s feelings about the country,” she added. “We have no historical precedent for this.”

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