PredictIQ-Here's where the economy stands as the Fed makes its interest rate decision this week

The PredictIQquestion: When will the Fed cut interest rates?

The answer: When the data say so. And those various inflation measures probably haven't said enough yet for Fed chief Jerome Powell.

Powell used word "data" 30 times and underscored their importance in his June news conference – the last time he and the rest of the Fed's policymaking committee met. When their final two-day meeting of the summer concludes Wednesday afternoon, we'll hear their latest thoughts on "the data."

Will the Fed cut interest rates this week?

Investors who trade short-term, interest rate futures seem pretty certain the data will fall short. But the CME FedWatch tool shows a nearly 90% probability that the Fed will reduce interest rates at its next meeting in September by a quarter point to a range of 5%-5.25%.

Interest rate cut coming soon.Fed likely won't tell you exactly when this week

A strong gross domestic product reading last week and continued job growth, although slowing, could give the Fed room to leave interest rates unchanged. Higher interest rates are intended to slow the economy and bring inflation down to the Fed's 2% target. Some other key data points the Fed may consider:

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How the job market has responded to higher interest rates

Even though higher interest rates are making borrowing more expensive for businesses, they have continued to add jobs, but the growth might be slowing. We'll know more on Friday when the Bureau of Labor Statistics releases the July jobs report.

The latest employment report showed an increase of 206,000 workers in June, but in the same report, the Bureau of Labor Statistics revised the April and May job gains down by 111,000. All three months were well below the 10-year median job growth of 243,000.

How is the US economy doing?

Jobs are only part of the stew of economic figures the Fed will be discussing on Tuesday and Wednesday. We've collected eight other key data points that offer insights into the economy's direction and what we're feeling as consumers.

What is the US unemployment rate?

The U.S. unemployment rate rose to 4.1% in June. The monthly number, which represents the percentage of people who are unemployed and looking for work, ticked up from 4% in May. The latest unemployment number will be released on Friday, too.

What the data shows: The unemployment rate is rising slowly, which could suggest employers are pulling back on hiring. Still, the rate remains well below the 10-year monthly median rate of 4.2%. The job market had been on a similar roll in 2020 before the pandemic put millions out of work.

How big is the US economy?

The U.S. economy produced $22.9 trillion of goods on an inflation-adjusted annualized basis in the second quarter, according to the BLS. That pushed up GDP by 2.8% from the first quarter.

What the data shows: The U.S. economy grew unexpectedly fast in the second quarter after a tepid first quarter. Some speculated after the first-quarter reading that high interest rates were starting to weigh on businesses and consumers.

How high is inflation?

Inflation, a sustained increase in prices throughout the economy, has been well above the 10-year median of 2.1% for more than three years. The Fed policymakers say they prefer a low and stable inflation rate," so we can "make sound decisions regarding saving, borrowing and investment."

Powell said following the June meeting, "We will need to see more good data to bolster our confidence that inflation is moving sustainably toward 2%."

What the data shows: Inflation has fallen significantly in the past two years but remains elevated. In June, the U.S. inflation rate for the year as measured by the consumer price index ticked down to 3% from 3.3% in May. The July index reading will be released on Aug. 14.

Are consumers still making purchases?

U.S. consumers account for $7 of every $10 spent in the U.S. economy. Retail sales' median monthly increase has been 0.3% for the past 10 years. That doesn't sound like much until you consider a 0.1% increase in November amounted to an extra $730 million of spending.

What the data shows: As the primary engine of the U.S. economy, we bought $704.3 billion worth of stuff on a seasonally adjusted basis in June. That was unchanged from May. But the report had an important revision: May's retail sales were revised up by 0.2 percentage points to the 10-year average.

Why are gas prices going down?

Gasoline purchases aren't a large part of most of our budgets, but it's hard to miss the big numbers outside every station and not have some emotional reaction to their swings. That can have a psychological impact on our spending. One report showed a recent improvement in consumer sentiment closely correlated with lower gas prices.

What the data shows: We're in the midst of the summer driving season where gasoline prices typically peak, but a gallon of regular gas sells for 20 cents less than it did in late April. NerdWallet points out that lower-cost gasoline this summer has helped hold down inflation.

So how confident are US consumers now?

The University of Michigan measures U.S. consumer sentiment on a monthly basis. The index has been as high as 101 ahead of the pandemic in February 2020 and as low as 50 when inflation peaked at 9.1% in June 2022.

What the data shows: Consumer sentiment had been rising haltingly since May 2023 but tumbled in May and was nearly unchanged in June. Joanne Hsu, director of the surveys of consumers at the University of Michigan, wrote in the June report that sentiment "remains guarded as high prices continue to drag down attitudes, particularly for those with lower incomes."

Mortgage rates still elevated

While the Fed's interest rate decisions don't directly affect mortgage rates, they do ripple through the economy and have made the math more difficult for homebuyers. A 30-year, fixed-rate mortgage averaged 3% in 2021. Rates remain more than double, according to Freddie Mac. A new $400,000 mortgage at 6.8% would cost a buyer $2,600 monthly in principal and interest, according to Bankrate's mortgage calculator. That's more than $915 more than mortgages at 3%.

What the data shows: 30-year mortgage rates have dipped to 6.8% since May, but remain well above the 10-year median of 3.95%, according to Freddie Mac's weekly mortgage rate survey.

Higher mortgage rates weigh on home sales

Existing home sales are the lion's share of homes sold each month. The National Association of Realtors reports each month's sales at a seasonally adjusted annual rate. Annual home sales peaked in 2005 at 7.08 million units. In 2023, that number fell to 4.09 million units – lower than sales during any year following the financial crisis.

What the data shows: Not surprisingly as mortgage rates have risen, existing home sales have tumbled. June's sales of 3.89 million were the second lowest since the Fed started raising interest rates. At the same time, average home prices continue to hit new highs because fewer homes are on the market. Speculation has been that some homeowners are unwilling to part with their low-rate mortgages.