Federal Open Market Committee (FOMC) Maintains Fed Funds Rate Unchanged at 3 ½ to 3 ¾ Percent

 

Current US Inflation. Consumer price inflation has fluctuated in recent months. Table I-3 provides inflation from Mar 2025 to Mar 2026. CPI prices increased 3.3 percent in the 12 months ending in Mar 2026. The consumer price inflation in Mar 2026 and Annual Equivalent percentage changes for the months from Dec 2025 to Mar 2026 of the CPI, the core CPI and major segments. The final column provides inflation from Feb to Mar 2026. Prior inflation rates fluctuate in accordance with inducement of risk appetite or frustration by risk aversion of carry trades from zero interest rates to commodity futures. At the margin, the decline in commodity prices in sharp recent risk aversion in commodities markets caused lower inflation worldwide (with return in some countries in Dec 2012 and Jan-Feb 2013) that followed a jump in Aug-Sep 2012 because of the relaxed risk aversion resulting from the bond-buying program of the European Central Bank or Outright Monetary Transactions (OMT) (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html). Carry trades moved away from commodities into stocks with resulting weaker commodity prices and stronger equity valuations. There is reversal of exposures in commodities but with preferences of equities by investors. Geopolitical events in Eastern Europe and the Middle East together with economic conditions worldwide are inducing risk concerns in commodities at the margin magnified by policies shifting energy sources. With zero or very low interest rates, commodity prices would increase again in an environment of risk appetite, as shown in past oscillating inflation. Excluding food and energy, core CPI inflation was 2.6 percent in the 12 months ending in Mar 2026, 2.8 percent in Annual Equivalent from Dec 2025 to Mar 2026 and 0.2 percent in Mar 2026, which annualizes at 2.4 percent. There is no deflation in the US economy that could justify further unconventional monetary policy open-ended or forever with very low interest rates and cessation of bond-buying by the central bank but with reinvestment of interest and principal, or QE→∞ even if the economy grows back to potential. The FOMC engaged in increases in the Fed balance sheet. Financial repression of very low interest rates constituted protracted distortion of resource allocation by clouding risk/return decisions, preventing the economy from expanding along its optimal growth path. On Aug 22, 2025, the Federal Open Market Committee changed its Longer-Run Goals and Monetary Policy Strategy, including the following (https://www.federalreserve.gov/monetarypolicy/monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy-2025.htm): “Durably achieving maximum employment fosters broad-based economic opportunities and benefits for all Americans. The Committee views maximum employment as the highest level of employment that can be achieved on a sustained basis in a context of price stability. The maximum level of employment is not directly measurable and changes over time owing largely to nonmonetary factors that affect the structure and dynamics of the labor market. Consequently, it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision. The Committee considers a wide range of indicators in making these assessments.

Price stability is essential for a sound and stable economy and supports the well-being of all Americans. The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee can specify a longer-run goal for inflation. The Committee reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory maximum employment and price stability mandates. The Committee judges that longer-term inflation expectations that are well anchored at 2 percent foster price stability and moderate long-term interest rates and enhance the Committee's ability to promote maximum employment in the face of significant economic disturbances. The Committee is prepared to act forcefully to ensure that longer-term inflation expectations remain well anchored.

” emphasis added).

      The statement of the FOMC at the conclusion of its meeting on Dec 12, 2012, revealed policy intentions (http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm). The FOMC updated in the statement at its meeting on Dec 16, 2015 with maintenance of the current level of the balance sheet and liftoff of interest rates (http://www.federalreserve.gov/newsevents/press/monetary/20151216a.htm) followed by the statement of Apr 29, 2026 (https://www.federalreserve.gov/newsevents/pressreleases/monetary20260429a.htm ): “April 29, 2026

Federal Reserve issues FOMC statement

For release at 2:00 p.m. EDT

·        Share

Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, on average, and the unemployment rate has been little changed in recent months. Inflation is elevated, in part reflecting the recent increase in global energy prices.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook. The Committee is attentive to the risks to both sides of its dual mandate.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Philip N. Jefferson; Anna Paulson; and Christopher J. Waller. Voting against this action were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting; and Beth M. Hammack, Neel Kashkari, and Lorie K. Logan, who supported maintaining the target range for the federal funds rate but did not support inclusion of an easing bias in the statement at this time.

For media inquiries, please email media@frb.gov or call 202-452-2955.

Implementation Note issued April 29, 2026

Last Update: April 29, 2026.”  

In his classic restatement of the Keynesian demand function in terms of “liquidity preference as behavior toward risk,” James Tobin (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1981/tobin-bio.html) identifies the risks of low interest rates in terms of portfolio allocation (Tobin 1958, 86):

“The assumption that investors expect on balance no change in the rate of interest has been adopted for the theoretical reasons explained in section 2.6 rather than for reasons of realism. Clearly investors do form expectations of changes in interest rates and differ from each other in their expectations. For the purposes of dynamic theory and of analysis of specific market situations, the theories of sections 2 and 3 are complementary rather than competitive. The formal apparatus of section 3 will serve just as well for a non-zero expected capital gain or loss as for a zero expected value of g. Stickiness of interest rate expectations would mean that the expected value of g is a function of the rate of interest r, going down when r goes down and rising when r goes up. In addition to the rotation of the opportunity locus due to a change in r itself, there would be a further rotation in the same direction due to the accompanying change in the expected capital gain or loss. At low interest rates expectation of capital loss may push the opportunity locus into the negative quadrant, so that the optimal position is clearly no consols, all cash. At the other extreme, expectation of capital gain at high interest rates would increase sharply the slope of the opportunity locus and the frequency of no cash, all consols positions, like that of Figure 3.3. The stickier the investor's expectations, the more sensitive his demand for cash will be to changes in the rate of interest (emphasis added).”

Tobin (1969) provides more elegant, complete analysis of portfolio allocation in a general equilibrium model. The major point is equally clear in a portfolio consisting of only cash balances and a perpetuity or consol. Let g be the capital gain, r the rate of interest on the consol and r^e the expected rate of interest. The rates are expressed as proportions. The price of the consol is the inverse of the interest rate, (1+r^e). Thus, g = [(r/r^e) – 1]. The critical analysis of Tobin is that at extremely low interest rates there is only expectation of interest rate increases, that is, dr^e>0, such that there is expectation of capital losses on the consol, dg<0. Investors move into positions combining only cash and no consols. Valuations of risk financial assets would collapse in reversal of long positions in carry trades with short exposures in a flight to cash. There is no exit from a central bank created liquidity trap without risks of financial crash and another global recession. The net worth of the economy depends on interest rates. In theory, “income is generally defined as the amount a consumer unit could consume (or believe that it could) while maintaining its wealth intact” (Friedman 1957, 10). Income, Y, is a flow that is obtained by applying a rate of return, r, to a stock of wealth, W, or Y = rW (Friedman 1957). According to a subsequent statement: “The basic idea is simply that individuals live for many years and that therefore the appropriate constraint for consumption is the long-run expected yield from wealth r*W. This yield was named permanent income: Y* = r*W” (Darby 1974, 229), where * denotes permanent. The simplified relation of income and wealth can be restated as:

W = Y/r (1)

Equation (1) shows that as r goes to zero, r→0, W grows without bound, W→∞. Unconventional monetary policy lowers interest rates to increase the present value of cash flows derived from projects of firms, creating the impression of long-term increase in net worth. An attempt to reverse unconventional monetary policy necessarily causes increases in interest rates, creating the opposite perception of declining net worth. As r→∞, W = Y/r →0. There is no exit from unconventional monetary policy without increasing interest rates with resulting pain of financial crisis and adverse effects on production, investment and employment.

Table I-3, US, Consumer Price Index Percentage Changes 12 months NSA and Annual Equivalent ∆%

	% RI Feb 2026	∆% 12 Month Mar 2026/Mar 2025 NSA	∆% Annual Equivalent Dec 2025 to   Mar 2026 SA*	∆% Mar 2026/Feb 2026 SA
CPI All Items	100.000	3.3	5.7	0.9
CPI ex Food and Energy	79.907	2.6	2.8	0.2
Food at Home	8.340	1.9	1.6	-0.2
Energy	6.400	12.5	45.8	10.9
Gasoline*	2.892	18.9	95.6	21.2
Energy Services	3.275	5.0	3.2	0.4
Electricity	2.482	4.6	0.0	0.8
Utility Gas	0.793	6.4	13.4	-0.9
Shelter	35.550	3.0	2.8	0.3
Medical Care Services	6.956	3.7	3.7	0.0
Transportation Services	6.399	4.1	9.1	0.6

% RI: Percent Relative Importance [Not updated because of shutdown.]

*Gasoline data available for Oct, Nov, Dec 2025, Jan 2026.

                                    For other items data are only available for Dec 2025.              

Source: https://www.bls.gov/news.release/cpi.htm      

 

IA Mediocre Cyclical United States Economic Growth

IA1 Stagnating Real Private Fixed Investment

IID United States International Terms of Trade

I United States Employment Situation

I Real Disposable Income                                                                                                

I United States Industrial Production

I United States Inflation

II Long-term United States Inflation

III Current United States Inflation

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

IIID Appendix on European Central Bank Large Scale Lender of Last Resort

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

IIID Appendix on European Central Bank Large Scale Lender of Last Resort

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

 

 

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025, 2026.

 

Note: This Blog will post only the Preamble of the US economy while we concentrate efforts in completing a book-length manuscript in the critically important subject of INFLATION.

                        

 

Preamble. United States total public debt outstanding is $39.0 trillion and debt held by the public $31.3 billion (https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny) [Date last updated Apr 28, 2026.] The Federal Reserve Bank of Saint Louis estimates Federal Total Public Debt as percent of GDP at 122.5 in IVQ2025 and Federal Total Public Debt Held by the Public at 98.2 Percent of GDP (https://fred.stlouisfed.org/series/GFDEGDQ188S). [Shutdown affects data: https://news.research.stlouisfed.org/2025/09/a-u-s-government-shutdown-could-delay-some-fred-data-2/] The Net International Investment Position of the United States, or foreign debt, is $27.54 trillion at the end of IVQ2025 (https://www.bea.gov/sites/default/files/2026-03/ita-iip425.pdf) [Shutdown affects data]. The United States current account deficit is 2.4 percent of nominal GDP in IVQ2025, “down from 3.1 percent in the third quarter” (https://www.bea.gov/sites/default/files/2026-03/ita-iip425.pdf) (Next release Jun 24, 2026) [Shutdown affects data]. The Treasury deficit of the United States reached $1.8 trillion in fiscal year 2025 (https://fiscal.treasury.gov/reports-statements/mts/). Total assets of Federal Reserve Banks reached $6.7 trillion on Apr 29, 2026 and securities held outright reached $6.4 trillion (https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1). US GDP nominal NSA reached $31.9 trillion in IQ2026 (https://apps.bea.gov/iTable/index_nipa.cfm). US GDP contracted at the real seasonally adjusted annual rate (SAAR) of 1.0 percent in IQ2022 and grew at the SAAR of 0.6 percent in IIQ2022, growing at 2.9 percent in IIIQ2022, growing at 2.8 percent in IVQ2022, growing at 2.9 percent in IQ2023, growing at 2.5 percent in IIQ2023 growing at 4.7 percent in IIIQ2023, growing at 3.4 percent in IVQ2023, growing at 0.8 percent in IQ2024, growing at 3.6 percent in IIQ2024, growing at 3.3 percent in IIIQ2024, growing at 1.9 percent in IVQ2024, contracting at 0.6 percent in IQ2025, growing at 3.8 percent in IIQ2025, growing at 4.4 percent in IIIQ2025 growing at 0.5 percent in IVQ2025 and growing at 2.0 percent in IQ2026 (https://apps.bea.gov/iTable/index_nipa.cfm). [Shutdown affects data]. Total Treasury interest-bearing, marketable debt held by private investors increased from $3635 billion in 2007 to $16,439 billion in Sep 2021 (Fiscal Year 2021) or increase by 352.2 percent (https://fiscal.treasury.gov/reports-statements/treasury-bulletin/). John Hilsenrath, writing on “Economists Seek Recession Cues in the Yield Curve,” published in the Wall Street Journal on Apr 2, 2022, analyzes the inversion of the Treasury yield curve with the two-year yield at 2.430 on Apr 1, 2022, above the ten-year yield at 2.374. Hilsenrath argues that inversion appears to signal recession in market analysis but not in alternative Fed approach.

The Consumer Price index of the United States in Chart CPI-H increased 3.3 percent in Mar 2026 Relative to a Year Earlier, The Tenth Highest Since 8.9 percent in Dec 1981 was Followed by the Highest of 9.1 percent in Jun 2022, the Second Highest of 8.6 percent in May 2022, 8.5 percent in both Jul 2022 and Mar 2022, 8.3 percent in both Apr and Aug 2022, 8.2 percent in Sep 2022, 7.9 percent in February 2022, 7.5 percent in Jan 2022, 7.7 percent in Oct 2022, 7.1 percent in Nov 2022, 6.5 percent in Dec 2022, 6.4 percent in Jan 2023, 6.0 percent in Feb 2023, 5.0 percent in Mar 2023, 4.9 percent in Apr 2023, 4.0 percent in May 2023, 3.0 percent in Jun 2023, 3.2 percent in Jul 2023, 3.7 percent in Aug 2023, 3.7 percent in Sep 2023, 3.2 percent in Oct 2023, 3.1 percent in Nov 2023, 3.4 percent in Dec 2023, 3.1 percent in Jan 2024, 3.2 percent in Feb 2024, 3.5 percent in Mar 2024, 3.4 percent in Apr 2024, 3.3 percent in May 2024, 3.0 in Jun 2024, 2.9 percent in Jul 2024, 2.5 percent in Aug 2024, 2.4 percent in Sep 2024, 2.6 percent in Oct 2024, 2.7 percent in Nov 2024, 2.9 percent in Dec 2024, 3.0 percent in Jan 2025, 2.8 percent in Feb 2025, 2.4 percent in Mar 2025, 2.3 percent in Apr 2025, 2.4 percent in May 2025, 2.7 percent in Jun 2025, 2.7 percent in Jul 2025, 2.9 percent in Aug 2025, 3.0 percent in Sep 2025, no observations available (NA) for Oct 2025 during the shutdown, 2.7 percent in Nov 2025, 2.7 percent in Dec 2025, 2.4 percent in Jan 2026, 2.4 percent in Feb 2026 and 3.3 percent in Mar 2026.

 

Chart CPI-H, US, Consumer Price Index, 12-Month Percentage Change, NSA, 1981-2026

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

 

Table CPI-H, US, Consumer Price Index, 12-Month Percentage Change, NSA,

1981-1983, 2019-2026          

Year	Jan	Feb	Mar	Apr	May	Jun
1981	11.8	11.4	10.5	10.0	9.8	9.6
1982	8.4	7.6	6.8	6.5	6.7	7.1
1983	3.7	3.5	3.6	3.9	3.5	2.6
1984	4.2	4.6	4.8	4.6	4.2	4.2
2019	1.6	1.5	1.9	2.0	1.8	1.6
2020	2.5	2.3	1.5	0.3	0.1	0.6
2021	1.4	1.7	2.6	4.2	5.0	5.4
2022	7.5	7.9	8.5	8.3	8.6	9.1
2023	6.4	6.0	5.0	4.9	4.0	3.0
2024	3.1	3.2	3.5	3.4	3.3	3.0
2025	3.0	2.8	2.4	2.3	2.4	2.7
2026	2.4	2.4	3.3
Year	Jul	Aug	Sep	Oct	Nov	Dec
1981	10.8	10.8	11.0	10.1	9.6	8.9
1982	6.4	5.9	5.0	5.1	4.6	3.8
1983	2.5	2.6	2.9	2.9	3.3	3.8
1984	4.2	4.3	4.3	4.3	4.1	3.9
2019	1.8	1.7	1.7	1.8	2.1	2.3
2020	1.0	1.3	1.4	1.2	1.2	1.4
2021	5.4	5.3	5.4	6.2	6.8	7.0
2022	8.5	8.3	8.2	7.7	7.1	6.5
2023	3.2	3.7	3.7	3.2	3.1	3.4
2024	2.9	2.5	2.4	2.6	2.7	2.9
2025	2.7	2.9	3.0	NA	2.7	2.7
2026

Note: NA because of interruption of appropriations.

Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm

 

Chart VII-3 of the Energy Information Administration provides the US retail price of regular gasoline. The price moved to $4.123 per gallon on Apr 27, 2026, from $3.133 a year earlier or 31.6 percent.

https://www.eia.gov/petroleum/weekly/ [Chart discontinued See Weekly Petroleum Status Report.]

Chart VII-3A provides the US retail price of regular gasoline, dollars per gallon, from $1.191 on Aug 20,1990 to $4.123 on Apr 27, 2026 or 246.2 percent. The price of retail regular gasoline increased from $2.249/gallon on Jan 4.2021 to $4.123 on Apr 27, 2026, or 83.3 percent. The price of retail regular gasoline increased from $3.530/gallon on Feb 21, 2022, two days before the invasion of Ukraine, to $4.123/gallon on Apr 27, 2026 or 16.8 percent and had increased 57.0 percent from $2.249/gallon on Jan 4,2021 to $3.530/gallon on Feb 28, 2022.

 

Chart VII-3A, US Retail Price of Regular Gasoline, Dollars Per Gallon

Source: US Energy Information Administration

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPMR_PTE_NUS_DPG&f=W 

Chart VII-4 of the Energy Information Administration provides the price of the Natural Gas Futures Contract increasing from $2.581 per million Btu on Jan 4, 2021 to $5.326 per million Btu on Dec 20, 2022 or 106.4 percent and closing at $1.785 on Apr 5, 2024 or change of minus 66.5 percent.

 

Chart VII-4, US, Natural Gas Futures Contract 1

Source: US Energy Information Administration

https://www.eia.gov/dnav/ng/hist/rngc1d.htm

Chart VII-5 of the US Energy Administration provides US field production of oil moving from a high of 12.983 thousand barrels per day in Dec 2019 to 11.760 thousand barrels per day in Dec 2021 and the final point of 13.246 thousand barrels per day in Jan 2026.

Chart II-5 United States Field Production of Crude Oil

https://www.eia.gov/dnav/pet/hist/leafhandler.ashx?n=pet&s=mcrfpus2&f=m

Chart VII-6 of the US Energy Information Administration provides net imports of crude oil and petroleum products. Net imports changed from 1967 thousand barrels per day in the first week of Dec 2020 to minus -3216 thousand barrels in the fourth week of Oct 25, 2024, minus 3310 thousand barrels in the second week of Dec 13, 2024 and minus 6.677 thousand barrels in the fourth week of Apr 24, 2026.

Chart VII-6, US, Net Imports of Crude Oil and Petroleum Products, Thousand Barrels Per Day

Source: US Energy Information Administration

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTNTUS2&f=W

Chart VI-7 of the EIA provides US Petroleum Consumption, Production, Imports, Exports and Net Imports 1950-2022. There was sharp increase in production in the final segment that reached consumption by 2020. There is reversal in 2021 with consumption exceeding production. 

Chart VI-7, US Petroleum Consumption, Production, Imports, Exports and Net Imports 1950-2022, Million Barrels Per Day

https://www.eia.gov/energyexplained/oil-and-petroleum-products/imports-and-exports.php

Chart VI-8 provides the US average retail price of electricity at 12.78 cents per kilowatthour in Dec 2020 increasing to 17.65 cents per kilowatthour in Feb 2026 or 38.1 per cent.

Chart VI-8, US Average Retail Price of Electricity, Monthly, Cents per Kilowatthour

https://www.eia.gov/electricity/data/browser/#/topic/7?agg=0,1&geo=g&endsec=vg&linechart=ELEC.PRICE.US-RES.M~~~&columnchart=ELEC.PRICE.US-ALL.M~ELEC.PRICE.US-RES.M~ELEC.PRICE.US-COM.M~ELEC.PRICE.US-IND.M&map=ELEC.PRICE.US-ALL.M&freq=M&start=200101&end=202205&ctype=linechart&ltype=pin&rtype=s&pin=&rse=0&ma

United States manufacturing output from 1919 to 2026 monthly is in Chart I-4 of the Board of Governors of the Federal Reserve System. The second industrial revolution of Jensen (1993) is quite evident in the acceleration of the rate of growth of output given by the sharper slope in the 1980s and 1990s. Growth was robust after the shallow recession of 2001 but dropped sharply during the global recession after IVQ2007. Manufacturing output recovered sharply but has not reached earlier levels and is losing momentum at the margin.  There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 2.9 percent per year from Jan 1919 to Jan 2026. Growth at 2.9 percent per year would raise the NSA index of manufacturing output (SIC, Standard Industrial Classification) from 106.8904 in Dec 2007 to 179.24607 in Jan 2026. The actual index NSA in Jan 2026 is 97.4547 which is 45.6 percent below trend. The underperformance of manufacturing in Mar-Nov 2020 originates partly in the earlier global recession augmented by the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the trough in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021).  Manufacturing output grew at average 1.5 percent between Dec 1999 and Dec 2006. Using trend growth of 1.5 percent per year, the index would increase to 139.9156 in Jan 2026. The output of manufacturing at 97.4547 in Jan 2026 is 30.3 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification System), manufacturing output fell from the high of 108.5201 in Jun 2007 to the low of 84.8006 in Apr 2009 or 21.9 percent. The NAICS manufacturing index increased from 84.8006 in Apr 2009 to 98.2351 in Jan 2026 or 15.8 percent. The NAICS manufacturing index increased at the annual equivalent rate of 3.5 percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the NAICS manufacturing output index from 104.8218 in Dec 2007 to 195.2641 in Jan 2026. The NAICS index at 98.2351 in Jan 2026 is 49.7 percent below trend. The NAICS manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999 to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output index from 104.8218 in Dec 2007 to 142.1800 in Jan 2026. The NAICS index at 98.2351in Jan 2026 is 30.9 percent below trend under this alternative calculation.

 

 

 

 

 

 

 

 

 

 

 

 

Chart I-4, US, Manufacturing Output, 1919-2026

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

Chart I-4B provides the data for the period 2007-2026 SIC US Manufacturing. There has not been recovery from the higher levels before the recession from Dec 2007 to Jan 2009 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions).

Chart I-4B, US, Manufacturing Output, 2007-2026

htps://www.federalreserve.gov/releases/g17/Current/default.htm

Chart I-7 of the Board of Governors of the Federal Reserve System shows that output of durable manufacturing accelerated in the 1980s and 1990s with slower growth in the 2000s perhaps because processes matured. Growth was robust after the major drop during the global recession but appears to vacillate in the final segment. There is sharp contraction in Mar-Apr 2020 in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the trough in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021). There is initial recovery in May 2020-Oct 2022 with deterioration/weakness and renewed oscillating growth in Nov 2022-Jan 2026.

Chart I-7, US, Output of Durable Manufacturing, 2007-2026

Source: Board of Governors of the Federal Reserve System

htps://www.federalreserve.gov/releases/g17/Current/default.htm

Chart I-7B provides NAICS Durable Manufacturing from 2007 to 2026. There has not been recovery from the higher levels before the recession from Dec 2007 to Aug 2009 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions).

 

 

Chart I-7B, US, Output of Durable Manufacturing, 2007-2026

Source: Board of Governors of the Federal Reserve System

htps://www.federalreserve.gov/releases/g17/Current/default.htm

Chart V-3D provides the index of US manufacturing (NAICS) from Jan 1972 to Jan 2026. The index continued increasing during the decline of manufacturing jobs after the early 1980s. There are likely effects of changes in the composition of manufacturing with also changes in productivity and trade. There is sharp decline in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and the trough in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021).

Chart V-3D, United States Manufacturing (NAICS) NSA, Jan 1972 to Jan 2026

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htmh

Chart V-3DB provides NAICS Manufacturing from 2007 to 2026. There has not been recovery from the higher levels before the recession from Dec 2007 to Apr 2009 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions).

Chart V-3DB, United States Manufacturing (NAICS) NSA, Jan 2007 to Jan 2026

Source: Board of Governors of the Federal Reserve System

https://www.federalreserve.gov/releases/g17/Current/default.htm

Chart VII-9 provides the fed funds rate and Three Months, Two-Year and Ten-Year Treasury Constant Maturity Yields. Unconventional monetary policy of near zero interest rates is typically followed by financial and economic stress with sharp increases in interest rates.

Chart VII-9, US Fed Funds Rate and Three-Month, Two-Year and Ten-Year Treasury Constant Maturity Yields, Jan 2, 1994 to 2022-2023

Source: Federal Reserve Board of the Federal Reserve System

https://www.federalreserve.gov/releases/h15/

            Note: program does not download the entire right-side of the chart.

Chart VII-9A, US Fed Funds Rate and Three-Month, Two-Year and Ten-Year Treasury Constant Maturity Yields, Jan 2, 2022 to May 30, 2023

Source: Federal Reserve Board of the Federal Reserve System

https://www.federalreserve.gov/releases/h15/

Note: Chart is shortened of current dates in download.

Chart VI-14 provides the overnight fed funds rate, the yield of the 10-year Treasury constant maturity bond, the yield of the 30-year constant maturity bond and the conventional mortgage rate from Jan 1991 to Dec 1996. In Jan 1991, the fed funds rate was 6.91 percent, the 10-year Treasury yield 8.09 percent, the 30-year Treasury yield 8.27 percent and the conventional mortgage rate 9.64 percent. Before monetary policy tightening in Oct 1993, the rates and yields were 2.99 percent for the fed funds, 5.33 percent for the 10-year Treasury, 5.94 for the 30-year Treasury and 6.83 percent for the conventional mortgage rate. After tightening in Nov 1994, the rates and yields were 5.29 percent for the fed funds rate, 7.96 percent for the 10-year Treasury, 8.08 percent for the 30-year Treasury and 9.17 percent for the conventional mortgage rate.

Chart VI-14, US, Overnight Fed Funds Rate, 10-Year Treasury Constant Maturity, 30-Year Treasury Constant Maturity and Conventional Mortgage Rate, Monthly, Jan 1991 to Dec 1996

Source: Board of Governors of the Federal Reserve System

http://www.federalreserve.gov/releases/h15/update/

Chart VI-15 of the Bureau of Labor Statistics provides the all items consumer price index from Jan 1991 to Dec 1996. There does not appear acceleration of consumer prices requiring aggressive tightening.

Chart VI-15, US, Consumer Price Index All Items, Jan 1991 to Dec 1996

Source: Bureau of Labor Statistics

https://www.bls.gov/cpi/data.htm

Chart IV-16 of the Bureau of Labor Statistics provides 12-month percentage changes of the all items consumer price index from Jan 1991 to Dec 1996. Inflation collapsed during the recession from Jul 1990 (III) and Mar 1991 (I) and the end of the Kuwait War on Feb 25, 1991 that stabilized world oil markets. CPI inflation remained almost the same and there is no valid counterfactual that inflation would have been higher without monetary policy tightening because of the long lag in effect of monetary policy on inflation (see Culbertson 1960, 1961, Friedman 1961, Batini and Nelson 2002, Romer and Romer 2004). Policy tightening had adverse collateral effects in the form of emerging market crises in Mexico and Argentina and fixed income markets worldwide.

Chart VI-16, US, Consumer Price Index All Items, Twelve-Month Percentage Change, Jan 1991 to Dec 1996

Source: Bureau of Labor Statistics

https://www.bls.gov/cpi/data.htm

 

Chart USFX provides the exchange rate of US Dollars per EURO from 2007 to 2023. Barry Eichengreen and Jeffrey Sachs, Exchange Rates and Economic Recovery in the 1930s, The Journal of Economic History, Vol. 45, No. 4 (Dec 1985), argue that foreign exchange “depreciation was clearly beneficial for initiating countries” during the Great Depression of the 1930s and that it was no equivalent to “beggar my neighbor” policies such as tariffs.

\

Chart USFX, Exchange Rate USD/EURO 2007-2023

Source: https://www.federalreserve.gov/releases/h10/current/

Chart USFX, Exchange Rate USD/EURO 2000-2023

Source: https://www.federalreserve.gov/releases/h10/current/

Federal Reserve Bank of St. Louis https://fred.stlouisfed.org/

Chart USFX, Exchange Rate USD/EURO 2018-2023

Source: https://www.federalreserve.gov/releases/h10/current/

Federal Reserve Bank of St. Louis https://fred.stlouisfed.org/

Table USFX provides the rate of USD/EURO in selected months. The dollar appreciated sharply from USD 1.2254 on Jan 4, 2021 to 1.0787 on Aug 25, 2023 and 1.1718 on Apr 24, 2026.

Table USFX, USD/EURO Selected Months

Date	USD/EUR
1/4/2021	1.2254
1/5/2021	1.2295
1/6/2021	1.229
1/7/2021	1.2265
1/8/2021	1.2252
1/11/2021	1.2169
1/12/2021	1.2168
1/13/2021	1.2159
1/14/2021	1.2156
1/15/2021	1.2099
1/31/2023	1.0858
2/1/2023	1.0917
2/2/2023	1.0918
2/3/2023	1.0825
2/6/2023	1.0722
2/7/2023	1.0705
2/8/2023	1.0734
2/9/2023	1.0761
2/10/2023	1.0670
2/13/2023	1.0718
2/14/2023	1.0722
2/15/2023	1.0683
2/16/2023	1.0684
2/17/2023	1.0678
2/24/2023	1.0545
3/03/2023	1.0616
3/10/2023	1.0659
3/17/2023	1.0647
3/24/2023	1.0762
3/31/2023	1.0872
4/7/2023	1.0913
4/14/2023	1.0980
4/21/2023	1.0973
4/28/2023	1.1040
5/5/2023	1.1026
5/26/2023	1.0713
6/2/2023	1.0724
6/9/2023	1.0749
6/16/2023	1.0925
6/23/2023	1.0887
6/30/2023	1.0920
7/7/2023	1.0964
7/14/2023	1.1237
7/21/2023	1.1120
7/28/2023	1.1039
8/4/2023	1.1036
8/11/2023	1.0957
8/18/2023	1.0875
8/25/2023	1.0787
9/1/223	1.0787
9/8/2023	1.0709
9/15/2023	1.0673
9/22/2023	1.0660
9/29/2023	1.0584
10/6/2023	1.0596
10/13/2023	1.0502
10/20/2023	1.0592
10/27/2023	1.0592
11/3/2023	1.0733
11/10/2023	1.0710
11/17/2023	1.0879
11/24/2023	1.0934
12/1/2023	1.0878
12/8/2023	1.0746
12/15/2023	1.0906
6/21/2024	1.0694
2/7/2025	1.0329
4/24/2026	1.1718

Source: https://www.federalreserve.gov/releases/h10/current/

U.S. International Trade in Goods and Services, February 2026

February 2026	-$57.3 B
January 2026	-$54.7 B

The U.S. monthly international trade deficit increased in February 2026 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit increased from $54.7 billion in January (revised) to $57.3 billion in February, as imports increased more than exports. The goods deficit increased $2.5 billion in February to $84.6 billion. The services surplus decreased $0.2 billion in February to $27.3 billion.

 

Next release: May 5, 2026

The U.S. monthly international trade deficit increased in February 2026 according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit increased from $54.7 billion in January (revised) to $57.3 billion in February, as imports increased more than exports. The goods deficit increased $2.5 billion in February to $84.6 billion. The services surplus decreased $0.2 billion in February to $27.3 billion.

Source: https://www.bea.gov/data/intl-trade-investment/international-trade-goods-and-services   [Data are not being updated during shutdown.]

A comprehensive analysis of the Mill-Bickerdike theorem and the Lerner theorem on tariffs and international terms of trade with application to the Brazilian coffee support program, the recovery of Brazil from the Great Depression and Brazil’s industrialization is in Carlos Manuel Pelaez, História da Industrialização Brasileira. Rio de Janeiro, APEC Editora, 1972.

Chart IID-1B provides the US terms of trade index, index of terms of trade of nonpetroleum goods and index of terms of trade of goods with the new base of 2017. The terms of trade of nonpetroleum goods dropped sharply from the mid-1980s to 1995, recovering significantly until 2014, dropping and then recovering again into 2021. There is relative stability in the terms of trade of nonpetroleum goods from 1967 to 2025 but sharp deterioration in the overall index and the index of goods.

 

Chart IID-1B, United States Terms of Trade Indexes 1967-2025, Quarterly

Source: Bureau of Economic Analysis

https://apps.bea.gov/iTable/index_nipa.cfm

[Data are not being updated during shutdown.]

Percentage shares of net trade (exports less imports), exports and imports in US Gross Domestic Product are in Chart IA1-14 from 1979 to 2025. There is sharp trend of decline of exports and imports after the global recession beginning in IVQ2007. Net trade has been subtracting from growth since the stagflation of the 1970s.

Chart IA1-14, US, Percentage Shares of Net Trade, Exports and Imports in Gross Domestic Product, Quarterly, 1979-2025

Source: US Bureau of Economic Analysis

https://apps.bea.gov/iTable/index_nipa.cfm

[Data are not being updated during shutdown.]

Table B provides the exchange rate of Brazil and the trade balance from 1927 to 1939. “Currency depreciation in the 1930s…benefitted the initiating countries…There can be no presumption that depreciation was beggar-thy-neighbor…competitive devaluation taken by a group of countries had they been even more widely adopted and coordinated internationally would have hasted recovery from the Great Depression,” Barry Eichengreen and Jeffrey Sachs, “Exchange Rates and Economic Recovery in the1930s,” Journal of Economic History, Vol. 45, No. 4 (Dec., 1985), pp.925-946.

Table B, Brazil, Exchange Rate and Trade Balance, 1927-1939

Year		Exchange Rate Mil-Réis per £		Trade Balance 1000 Contos
1927		40.6		370.9
1928		40.3		275.3
1929		40.6		332.7
1930		49.4		563.6
1931		62.4		1517.2
1932		48.1		1018.1
1933		52.6		655
1934		59.7		956.2
1935		57.9		248.1
1936		58.4		626.8
1937		56.9		-222.5
1938		57.6		-98.7
1939		71.1		631.9

Source: Carlos Manuel Peláez, Análise Econômica do Programa Brasileiro de Sustentação do Café 1906-1945: Teoria, Política e Medição, Revista Brasileira de Economia, Vol. 25, N 4, Out/Dez 1971, 5-213.

Christina D. Romer argues that growth of the money stock was critical in the recovery of the United States from the Great Depression (Christina D. Romer, What ended the Great Depression? The Journal of Economic History, Volume 52, Number 4, Dec 1992, pp 757-784).

Table C, Brazil, Yearly Percentage Changes of the Money Stock, M1 and M2, Exchange Rate, Terms of Trade, Industrial Production, Real Gross National Product and Real Gross Income Per Capita, 1930-1939

Period	M1	M2	Exchange Rate	Terms of Trade	Industrial Production	Real GNP	Real Gross Income Per Capita
1929/30	-9	-4	22	-34	-5	-1	-10
1930/31	4	1	26	-5	8	-3	-6
1931/32	15	7	-23	8	0	6	2
1932/33	10	4	10	-15	16	10	7
1933/34	5	6	13	5	13	7	5
1934/35	7	8	-3	-28	14	1	-4
1935/36	10	11	1	2	14	12	9
1936/37	10	9	-3	2	7	3	0
1937/38	19	13	1	-11	6	4	-1
1938/39	0	8	23	-12	14	4	2

Source: Carlos Manuel Peláez and Wilson Suzigan, História Monetária do Brasil. Segunda Edição Revisada e Ampliada. Coleção Temas Brasileiros, Universidade de Brasília, 1981.

“In the period of the free coffee market 1857-1906, international coffee prices fluctuated in cycles of increasing amplitude. British export prices decreased at a low average rate, and physical exports of coffee by Brazil increased at the average rate of 2.9 percent per year. The income terms of trade of the coffee economy of Brazil improved at the average compound rate of 4.0 percent per year. But the actual rate must have been much higher because of drastic improvements in the quality of manufactures while the quality of coffee remained relatively constant,” Carlos Manuel Peláez, “The Theory and Reality of Imperialism in the Coffee Economy of Nineteenth-Century Brazil,” The Economic History Review, Second Series, Volume XXIX, No. 2, May 1976. 276-290. See Carlos Manuel Peláez, “A Comparison of Long-Term Monetary Behavior and Institutions in Brazil, Europe and the United States,” The Journal of European Economic History, Volume 5, Number 2, Fall 1976, 439-450, Presented at the Sixth International Congress of Economic History, Section on Monetary Inflation in Historical Perspective, Copenhagen, 22 Aug 1974.

In his classic restatement of the Keynesian demand function in terms of “liquidity preference as behavior toward risk,” James Tobin (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1981/tobin-bio.html) identifies the risks of low interest rates in terms of portfolio allocation (Tobin 1958, 86):

“The assumption that investors expect on balance no change in the rate of interest has been adopted for the theoretical reasons explained in section 2.6 rather than for reasons of realism. Clearly investors do form expectations of changes in interest rates and differ from each other in their expectations. For the purposes of dynamic theory and of analysis of specific market situations, the theories of sections 2 and 3 are complementary rather than competitive. The formal apparatus of section 3 will serve just as well for a non-zero expected capital gain or loss as for a zero expected value of g. Stickiness of interest rate expectations would mean that the expected value of g is a function of the rate of interest r, going down when r goes down and rising when r goes up. In addition to the rotation of the opportunity locus due to a change in r itself, there would be a further rotation in the same direction due to the accompanying change in the expected capital gain or loss. At low interest rates expectation of capital loss may push the opportunity locus into the negative quadrant, so that the optimal position is clearly no consols, all cash. At the other extreme, expectation of capital gain at high interest rates would increase sharply the slope of the opportunity locus and the frequency of no cash, all consols positions, like that of Figure 3.3. The stickier the investor's expectations, the more sensitive his demand for cash will be to changes in the rate of interest (emphasis added).”

Tobin (1969) provides more elegant, complete analysis of portfolio allocation in a general equilibrium model. The major point is equally clear in a portfolio consisting of only cash balances and a perpetuity or consol. Let g be the capital gain, r the rate of interest on the consol and r^e the expected rate of interest. The rates are expressed as proportions. The price of the consol is the inverse of the interest rate, (1+r^e). Thus, g = [(r/r^e) – 1]. The critical analysis of Tobin is that at extremely low interest rates there is only expectation of interest rate increases, that is, dr^e>0, such that there is expectation of capital losses on the consol, dg<0. Investors move into positions combining only cash and no consols. Valuations of risk financial assets would collapse in reversal of long positions in carry trades with short exposures in a flight to cash. There is no exit from a central bank created liquidity trap without risks of financial crash and another global recession. The net worth of the economy depends on interest rates. In theory, “income is generally defined as the amount a consumer unit could consume (or believe that it could) while maintaining its wealth intact” (Friedman 1957, 10). Income, Y, is a flow that is obtained by applying a rate of return, r, to a stock of wealth, W, or Y = rW (Friedman 1957). According to a subsequent statement: “The basic idea is simply that individuals live for many years and that therefore the appropriate constraint for consumption is the long-run expected yield from wealth r*W. This yield was named permanent income: Y* = r*W” (Darby 1974, 229), where * denotes permanent. The simplified relation of income and wealth can be restated as:

W = Y/r (1)

Equation (1) shows that as r goes to zero, r→0, W grows without bound, W→∞. Unconventional monetary policy lowers interest rates to increase the present value of cash flows derived from projects of firms, creating the impression of long-term increase in net worth. An attempt to reverse unconventional monetary policy necessarily causes increases in interest rates, creating the opposite perception of declining net worth. As r→∞, W = Y/r →0. There is no exit from unconventional monetary policy without increasing interest rates with resulting pain of financial crisis and adverse effects on production, investment and employment.

Inflation and unemployment in the period 1966 to 1985 is analyzed by Cochrane (2011Jan, 23) by means of a Phillips circuit joining points of inflation and unemployment. Chart VI-1B for Brazil in Pelaez (1986, 94-5) was reprinted in The Economist in the issue of Jan 17-23, 1987 as updated by the author. Cochrane (2011Jan, 23) argues that the Phillips circuit shows the weakness in Phillips curve correlation. The explanation is by a shift in aggregate supply, rise in inflation expectations or loss of anchoring. The case of Brazil in Chart VI-1B cannot be explained without taking into account the increase in the fed funds rate that reached 22.36 percent on Jul 22, 1981 (http://www.federalreserve.gov/releases/h15/data.htm) in the Volcker Fed that precipitated the stress on a foreign debt bloated by financing balance of payments deficits with bank loans in the 1970s. The loans were used in projects, many of state-owned enterprises with low present value in long gestation. The combination of the insolvency of the country because of debt higher than its ability of repayment and the huge government deficit with declining revenue as the economy contracted caused adverse expectations on inflation and the economy.  This interpretation is consistent with the case of the 24 emerging market economies analyzed by Reinhart and Rogoff (2010GTD, 4), concluding that “higher debt levels are associated with significantly higher levels of inflation in emerging markets. Median inflation more than doubles (from less than seven percent to 16 percent) as debt rises frm the low (0 to 30 percent) range to above 90 percent. Fiscal dominance is a plausible interpretation of this pattern.”

The reading of the Phillips circuits of the 1970s by Cochrane (2011Jan, 25) is doubtful about the output gap and inflation expectations:

“So, inflation is caused by ‘tightness’ and deflation by ‘slack’ in the economy. This is not just a cause and forecasting variable, it is the cause, because given ‘slack’ we apparently do not have to worry about inflation from other sources, notwithstanding the weak correlation of [Phillips circuits]. These statements [by the Fed] do mention ‘stable inflation expectations. How does the Fed know expectations are ‘stable’ and would not come unglued once people look at deficit numbers? As I read Fed statements, almost all confidence in ‘stable’ or ‘anchored’ expectations comes from the fact that we have experienced a long period of low inflation (adaptive expectations). All these analyses ignore the stagflation experience in the 1970s, in which inflation was high even with ‘slack’ markets and little ‘demand, and ‘expectations’ moved quickly. They ignore the experience of hyperinflations and currency collapses, which happen in economies well below potential.”

Yellen (2014Aug22) states that “Historically, slack has accounted for only a small portion of the fluctuations in inflation. Indeed, unusual aspects of the current recovery may have shifted the lead-lag relationship between a tightening labor market and rising inflation pressures in either direction.”

Chart VI-1B provides the tortuous Phillips Circuit of Brazil from 1963 to 1987. There were no reliable consumer price index and unemployment data in Brazil for that period. Chart VI-1B used the more reliable indicator of inflation, the wholesale price index, and idle capacity of manufacturing as a proxy of unemployment in large urban centers.

 

Chart VI1-B, Brazil, Phillips Circuit, 1963-1987

Source: ©Carlos Manuel Pelaez, O Cruzado e o Austral: Análise das Reformas Monetárias do Brasil e da Argentina. São Paulo: Editora Atlas, 1986, pages 94-5. Reprinted in: Brazil. Tomorrow’s Italy, The Economist, 17-23 January 1987, page 25.

 © Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025, 2026