Today (May 12), the Bureau of Labor Statistics (BLS) released its report on the consumer price index (CPI) for April. As expected, higher energy prices resulting from the conflict in Iran led to a jump in inflation. The following figure compares headline CPI inflation (the blue line) and core CPI inflation (the red line).
The headline inflation rate, which is measured by the percentage change in the CPI from the same month in the previous year, was 3.8 percent in April, up from 3.3 in March. This was the highest inflation rate since May 2023.
The core inflation rate,which excludes the prices of food and energy, was 2.7 percent in April, up slightly from 2.6 percent in March.
Headline inflation and core inflation were both slightly higher than economists surveyed by the Wall Street Journal had expected.
In the following figure, we look at the 1-month inflation rate for headline and core inflation—that is the annual inflation rate calculated by compounding the current month’s rate over an entire year. Calculated as the 1-month inflation rate, headline inflation (the blue line) was a very high 8.0 percent in April, which was actually down from 10.9 percent in March. Core inflation (the red line) was 4.6 percent in April, up from 2.4 percent in March.
The following figure emphasizes the role played by energy prices in causing the jump in inflation. The blue line shows the 1-month inflation rate in all energy prices included in the CPI. Inflation in energy prices declined from a very high 245.1 percent in March to a still high 56.6 percent in April. The red line shows the 1-month inflation rate in gasoline prices, which declined from an astounding 907.4 percent in March to a still very painful 88.8 percent in April.
Did the jump in energy prices pass through to increases in food prices, which are a key concern for many consumers? The following figure shows 1-month inflation in the CPI category “food at home” (the blue bar)—primarily food purchased at grocery stores—and the category “food away from home” (the red bar)—primarily food purchased at restaurants. Inflation in grocery prices rose 8.5 percent in April after declining in March. Inflation in food prices away from home was 2.8 percent in April, down from 2.9 percent in March. The high rate of increase in grocery prices was due to rising energy prices, as well as to sharp increases in beef and fruit and vegetable prices, which rose for reasons largely unrelated to higher energy costs.
What effect is this inflation report likely to have on the Fed’s policymaking Federal Open Market Committee (FOMC) at its next meeting on June 16–17—Kevin Warsh’s first meeting as Fed chair? Earlier this year, some market analysts believed that replacing Jerome Powell as chair with Warsh would increase the probability of the FOMC cutting its target for the federal funds rate this year. But the acceleration in inflation during the past two months, even if it proves to be temporary, and relatively strong data on economic growth and employment make it unlikely that Warsh will push for a rate cut any time soon. At this point, trading by investors in the federal funds futures market favors the FOMC neither raising nor lowering its federal funds rate target during the remainder of this year.
This morning (May 8), the Bureau of Labor Statistics (BLS) released its “Employment Situation” report (often called the “jobs report”) for April. The report showed a stronger than expected increase in employment.
The jobs report has two estimates of the change in employment during the month: one estimate from the establishment survey, often referred to as the payroll survey, and one from the household survey. As we discuss in Macroeconomics, Chapter 9, Section 9.1 (Economics, Chapter 19, Section 19.1), many economists and Federal Reserve policymakers believe that employment data from the establishment survey provide a more accurate indicator of the state of the labor market than do the household survey’s employment and unemployment data. (The groups included in the employment estimates from the two surveys are somewhat different, as we discuss in this post.)
According to the establishment survey, there was a net increase of 115,000 nonfarm jobs during April. Economists surveyed by the Wall Street Journal had forecast an increase of only 55,000 jobs. Economists surveyed by Bloomberg had a slightly higher forecast of a net increase of 62,000 jobs. The BLS revised downward its previous estimates of employment in February and March by a combined 16,000 jobs. (The BLS notes that: “Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.”)
The following figure from the jobs report shows the net change in nonfarm payroll employment for each month in the last two years. The figure shows an unusual pattern in the job market since the middle of 2025 in which months of declining employment and months of increasing employment have been alternating. March and April of 2026 are the first back-to-back months of increasing net employment since March and April of 2025.
These fluctuations of net employment gains around roughly zero are consistent with a recent analysis from economists at the Federal Reserve Bank of Dallas that estimates the break-even rate of employment growth—the rate of employment growth at which the unemployment rate remains constant. They note that “continued net outflows of unauthorized immigrants, together with shifts in labor force participation, have pushed the monthly break-even employment growth lower than previously thought.” They conclude that: “The break-even rate [of employment growth] peaked at about 250,000 jobs per month in 2023, fell to roughly 10,000 by July 2025, and declined to near zero thereafter, averaging about –3,000 jobs per month from August to December 2025, indicating, if anything, a modest net jobs loss over this period.” In other words, in the current labor market, the break-even rate of employment growth may actually be negative.
The unemployment rate, which is calculated from data in the household survey, was 4.3 percent in April, unchanged from March. As the following figure shows, the unemployment rate has been remarkably stable over the past year and a half, staying between 4.0 percent and 4.4 percent in each month since May 2024. The Federal Open Market Committee’s current estimate of the natural rate of unemployment—the normal rate of unemployment over the long run—is 4.2 percent. So, unemployment is slightly above that estimate of the natural rate. (We discuss the natural rate of unemployment in Macroeconomics, Chapter 9 and Economics, Chapter 19.)
As the following figure shows, the monthly net change in jobs from the household survey moves much more erratically than does the net change in jobs from the establishment survey. As measured by the household survey, there was a net decrease of 226,000 in April, the fourth consecutive month of decreases. (Note that because of last year’s shutdown of the federal government, there are no data for October or November.) In any particular month, the story told by the two surveys can be inconsistent. In this case, the establishment survey shows a strong increase in net employment, while the household survey shows a decline.
The household survey has another important labor market indicator: the employment-population ratio forprime age workers—those workers aged 25 to 54. In April the ratio was 80.7 percent, the same as in February and March. The prime-age population ratio remains above its value for most of the period since 2001. The continued high levels of the prime-age employment-population ratio indicate continuing strength in the labor market.
There have been media reports of firms, including Salesforce, Cloudflare, Coinbase, and Freshworks, laying off workers in information systems. The following figure shows net employment changes in the BLS employment category of “computing infrastructure providers, data processing, web hosting, and related services.” Employment in this sector declined for the sixth straight month in April. Since November 2025, the sector has experienced a net decline of 23,000 jobs.
The establishment survey also includes data on average hourly earnings (AHE). As we noted in this post, many economists and policymakers believe the employment cost index (ECI) is a better measure of wage pressures in the economy than is the AHE. The AHE does have the important advantage of being available monthly, whereas the ECI is only available quarterly. The following figure shows the percentage change in the AHE from the same month in the previous year. The AHE increased 3.6 percent in April, up from 3.4 percent in March.
What effect is this jobs report likely to have on the decisions of the Federal Reserve’s policymaking Federal Open Market Committee at its next meeting on June 16–17, the first meeting with Kevin Warsh as chair? Although employment growth has been relatively slow in recent months, as noted earlier, even that slow rate may be close to the break-even rate of employment growth. So, it’s unlikely that the FOMC will see current conditions in the job market as warranting a cut in the committee’s target range for the federal funds rate. In addition, disruptions to the world oil market as a result of the conflict in Iran have caused oil prices to rise, putting upward pressure on the price level. And the effects of tariff increases have likely not yet fully passed through to increases in prices. These factors make it likely that the committee will keep its target range for the federal funds rate unchanged at its next meeting and may even begin considering future increases in the target range.
The probability that investors in the federal funds futures market assign to the FOMC keeping its target rate unchanged at its June meeting decreased slightly this afternoon to 93.9 percent, from 96.4 percent yesterday. Investors no longer assign a greater than a 50 percent probability to a rate cut occuring at any meeting through the end of 2027.
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