Just in case this morning’s NFP print hasn’t been hyped up enough, former FX trader turned Bloomberg contributor Richard Breslow wants you to treat this number like your f*cking life depends on it.
Because in the sense that your life depends on r*, you may still be breathing 45 minutes from now – or not.
Via Bloomberg’s Richard Breslow
Today’s non-farm payrolls report matters more than you know. Even if it’s unlikely to have the slightest effect on whether the Fed raises rates next week. They will. What we need to scrutinize is whether there are any signs in the details that show any glimmer of hope that the neutral interest rate may be rising from the dismal levels suggested by the theory of secular stagnation. The future may depend upon it.
- If the neutral real funds rate — the level of Fed funds adjusted for inflation that’s neither expansionary nor contractionary — doesn’t rise above current projections, don’t expect the current hawkish talk to result in any eye- popping number of rate rises. No matter how you define “gradually”
- It can’t, because it means persistent weakness in both economic supply and demand will limit just how fast and far the economy can grow. And for those of you who care, just how much wages can rise
- In Chair Yellen’s latest speech, it was widely and properly taken that she gave the final blessing to a March hike. But the only important question is whether it was a signal that rates are now on a new and more aggressive trajectory? Perhaps, but only to the extent that the committee wants to get back on the track they were forced to abandon over the last two years. If they accomplish this year’s goals they’ll still be way behind the schedule envisioned in 2015
- She dedicated a major portion of her time to a very detailed discussion of the challenges posed by the low neutral rate. And how it must affect their decision-making. She certainly didn’t leave the impression that it was a concern that had receded
- To change current expectations, productivity, wages and business investment, among other things, need to pick-up and stay up. The current improvement in global economic numbers is a good sign, but it has to stick and accelerate — and do so broadly
- President Draghi’s message after the ECB meeting was an encouraging sign. While acknowledging a shift in conditions to the better, there was also a clear commitment to keep the current program going and a willingness to do more if necessary. Expect a similar message from the BOJ next week. The U.S. needs the rest of the world to help it raise all boats. It simply can’t be the only growth engine
- We all know animal spirits and inflationary expectations are contagious. If they can grow in the U.S. as something manifested more widely than inflated equity prices, it has the potential to spread elsewhere and could ignite a virtuous cycle
For those fluent in “meme”…