NASHVILLE, Tennessee — All eyes are on the U.S. Federal Reserve amid a period of economic uncertainty highlighted by tariffs, consumer spending skewed toward wealthy income brackets and middling job growth.
How the Fed threads the needle despite all of the macroeconomic noise to mitigate inflation risk is through its interest rate policy. Anoop Mishra, regional executive and vice president at the Federal Reserve Bank of Atlanta — one of the 12 Federal Reserve banks in the U.S. — said uncertainty is one of the biggest factors in how interest rates might change over the remainder of the year.
“Rates going forwards, we’re at 4.5% now, and the target this year is to stay where we are or come down 50 basis points, but there is uncertainty, and how that rate might move might depend on what we think are the most concerning elements, be it labor or inflation, or some other data,” he said during an on-stage interview at the recent Hotel Data Conference.
The Fed sits on a mountain of data, and sifting through it all to make decisions that affect banks, businesses, consumers, homeowners and more can sometimes be a challenge, Mishra said.
“We want an understanding of labor, growth and inflation, and how they interact with one another to ultimately impact the key lever we have, which is interest rates,” Mishra said.
Overall, the Fed's mindset is two-fold, he said.
“The prism that the Fed looks at [for] our decision making is really through two things called the dual mandate. … While we do not want inflation to be too high, we also are concerned about employment. We don’t want policy where inflation may be low but labor markets are really weak,” he said.
Sometimes that balancing act involves contextualizing a data set on inflation, job growth or GDP. Mishra said he and his colleagues repeatedly ask, “Why do you have that number? … [but also] we are really interested in understanding the balance of risks.”
The Fed's data sets include historical data and projected outlooks, as well as feedback and real-time experience from regular meetings with business leaders through the Regional Economic Information Network.
“What we are trying to do is to say, 'Look, we know what the data is telling us, [but] one, could you give us some color commentary as to why the data might be telling us that? What are you actually seeing? But more importantly, what are you seeing for the next quarter or the next month … even into 2026?'” Mishra said.
With some idea of what businesses are actually experiencing in terms of prices and hiring, the Fed is better equipped to set its economic policy, Mishra said.
“What we hope for, as we bring those two different aspects together … is to come up with the best decisions possible,” he said.
Current state of play
Overall, U.S. GDP growth has been mostly consistent in the past few years, Mishra said.
“If you look at gross domestic product growth over the last couple of years, it has actually been pretty strong. … This year, first quarter was negative, then the second quarter it rebounded, but it’s actually very unusual noise we’ve heard in the first half of this year,” he said.
This economic turbulence had less to do with the “guts, the core of the economy, but it had to do with a specific measure … which is net exports,” Mishra added.
U.S. imports earlier in the year “skyrocketed” as international traders flooded the market before President Donald Trump’s wide-ranging tariffs hit home, he said.
“If we stripped out the tariff-impact dynamic, what we actually saw was a pretty vibrant [first quarter]. It wasn’t great but it was about 2.5% or so,” he said.
But it was the opposite in the second quarter with U.S. net exports increasing considerably, Mishra said.
Spending our way out
U.S. consumer spending makes up approximately two-thirds of the economy, but there are genuine costs-of-living crises affecting the market, Mishra said.
“Especially true in the last year to year and a half, the top 10% of income earners have actually accounted for a greater, more disproportionate share of overall spend … [about] 50%. … we look at the numbers and we see the broader retail number be relatively flat or OK, but it is a little deceptive because there is a lot more consumer stress that we are seeing across income bands. It is that the highest income level is basically supporting … a lot of the rest of the economy,” he said.
Plus, U.S. homeowners are spending a higher percentage of their salary on their monthly mortgage payments, shrinking their budgets elsewhere, Mishra said. The rule of thumb is that for a median income no more than approximately one-third of a salary should be given over to mortgage repayments, but he said the current average in the U.S. is approximately 46%.
“Discretionary income of consumers is down,” he added.
Uncertainty over U.S. trade policy ranks very high in the list of biggest concerns among businesses and consumers. Cost increases being passed to the consumer also need to be balanced against labor, inflation and margins, or against businesses deciding to take the brunt of those price increases themselves, Mishra said.
“Businesses are not nearly as fast to pull the trigger on capital investment … it is more a wait-and-see approach,” he said.
Uncertainty skyrocketed in April, but there is a feeling that some of the worst-case scenarios over tariffs will now not come to fruition, Mishra said.
Across the country, every sector has cooled in terms of jobs growth, but Mishra said the numbers have not translated in employment drops. Instead, businesses simply are not hiring new employees.
“That’s important because if there are not a lot of layoffs, typically consumers continue to spend. They may tweak their spending, but they will continue to spend,” he said.
The labor picture is something the Fed is paying close attention to, Mishra said, adding that wage growth has come down a little but is still higher than before the pandemic.
He said one positive is there has not been a collapse in the U.S. labor market. When collapses do happen, it takes a while for employment numbers to recover.
“When we see a lot of slowing growth, there begins attrition-based reduction, businesses are then not as quick to backfill [jobs],” Mishra said.