Good News Of The Bad Variety
The US economy added more jobs than expected in September, while the unemployment rate moved lower with participation. Wage growth remained elevated.
Taken together, the data undermined hopes for a Fed pivot, and bolstered the case for additional policy tightening. Or at least that'll be the narrative.
At 263,000, the headline NFP print topped consensus, albeit not by a huge margin (figure below). Economists expected 255,000. The range of estimates, from six-dozen forecasters, was 199,000 to 3
So a 75bp hike is a mistake but just the hope of a Fed pivot of 50 BP caused a huge two day rally. Has it come down to they’re damned either way?
Yeah, I think we’ve moved beyond “no good options” into “all options are bad options” territory now.
all this takes me back to my belief that the Fed need to be “the adults in the room,” as they try to manage these challenging circumstances, ie a 50 bps should more than suffice unless a dramatically outsized next inflation number surfaces…if investors overly read dovish and spur a relief rally, then let it fall from eventual investor fatigue given current overall tightening conditions…just my 3 cents worth…
We seem to keep forgetting that “inflation” is not a monlithic thing. Rather it is a descriptor for the average by which the prices of goods, services, commodities and other inputs change over time. There are thousands of components that collectively result in various levels of gross overall average price change. Beyond that, the changes in price resulting from changes in supply and demand are the result of human behavior. Everyone reacts differently in various markets so thinking we can create a usable algorithm that takes all that information and relates it to short-term interest rates is folly. When Volcker (allegedly) tamed inflation with interest rates it took 20% rates to do the trick. Besides, that was 40 years ago and the economy, markets and the political climate were vastly more simplistic than they are today. That the economy will be wrecked by the drive to channel Volcker is certain. That the actions of the Fed can demonstrably change inflation, not so much.
Well put, sir.
certainly the household, public, and (guessing) corporate debt levels, as well as population demographics were vastly different 40 years ago…
If energy. housing and employment/wages are the 3 main problems- it does not seem that difficult to solve with elected and appointed leaders working on a monetary/ fiscal joint policy.
We can frack for a period of time- even Germany is considering fracking for natural gas until we figure out a longer term solution (nuclear). Government sponsored housing initiatives (granted, we will need local level governments to cooperate) can work toward filling the housing shortage. Finally, stop giving people so many financial incentives that the workers prematurely leave the workforce/straighten out immigration policy.
It seems ludicrous that we are just looking to the Fed to raise rates to “make it all good again”.