U.S. Economy This Week, March 22, 2025: Staggering Forward as Fed Dithers
Nobody seems to know what the U.S. economy is doing right now. Ph.D. economist Bob Genetski guides you through with a quick, commonsense analysis.
Guest post by economist Robert Genetski, Ph.D.
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This week’s economic news shows a struggle to cope with Trump’s tariffs. The March Homebuilders Index fell to 39, down from February’s 42 (50 is break-even). Builders estimated the impact of tariffs would add $9,200 to the cost of a typical house. The expected tariff impact more than offset the positive impact from slightly lower mortgage rates and reduced regulatory costs.
Retail sales were sluggish. February sales were down slightly from the fourth quarter. Sales from a year ago were up only 3%.
Stocks rebounded this week after a steep sell-off. The major indexes rose 2% to 3% and small cap ETFs led with gains of 3% to 4%.
Fed Policy
The Fed decided to slow its sales of securities to $40 billion a month, down from a target of $60 a month. Its prior “targets” were more an upper limit since actual sales of securities averaged $34 billion in the three months ending in February.
There is no reason the Fed should be selling securities at all, since such sales tend to reduce the money supply and put upward pressure on interest rates.
Trump wants the Fed to cut short-term rates due to the disruption associated with his policy changes. Neither the Fed nor Trump know what the appropriate rate should be. As the economy adjusts to numerous changes, what the Fed should do is stop selling (or buying) securities and let markets determine the appropriate short-term rate.
Looking Ahead
Next Thursday’s GDP report will include data on fourth quarter 2024 profits as well as the first estimate of GDP from the income side. We expect the updates will show fourth quarter GDP slowed to roughly a 4% annual rate when measured by income instead of spending.
Friday’s report on February spending, income, and inflation will provide the most comprehensive data for estimating first quarter GDP. This report includes the Fed’s favorite measure of inflation.
We expect the report will show only moderate increases in February income, spending, and inflation. Personal spending likely slowed to a 3% to 4% annual rate. While this will increase concerns over a slowdown or decline in the economy, it is
good news for inflation.
More on inflation: the Atlanta Fed estimates both total and core inflation will show increases of only 0.19% for the month. We agree that the February inflation report will have more good news.