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Now Or Later, The Market Will Get The Cuts It Wants
"A bigger increase in cyclically-sensitive shelter prices will make it harder for Fed officials to shake reservations about starting rate cuts with a 50bps reduction next week," Wall Street Journal "Fed whisperer" Nick Timiraos said Wednesday, following the release of inflation data which likely closed the door to a half-point first cut at the September FOMC meeting.
The CPI report made the optics of a 50bps out-of-the-gate move challenging for Jerome Powell, that's for sure. Indeed, I'm duty-b
Hit the nail on the head.
H 2028
Lots of good points in here, but I think there could be 2 possible counterarguments:
First, their playbook in 2022 was to start small and ramp up if data did not improve the way they wanted. People forget that during a raging inflation inferno in March 2022, they did just 25 basis points to start. In this case, you have labor market deceleration but not deterioration and a still near 3% inflation rate with inflation still top of mind as a concern and no appreciable stock market impact (its still near ATH)
Second, what would 50 now do to catch up to the labor market curve? Is the idea that it’s insurance for the future and that 12 months from now, it will drive more hiring? In that scenario, someone has to explain how “streamlining business operations through AI” like Dell and other firms are doing is going to be slowed or reversed by rate cuts. Is the idea that rate cuts will make firms both willing to spend on the enormous amounts expected for AI investments while also hiring at a faster pace?
https://www.theregister.com/2024/09/11/dell_layoff_sec/
“Second, what would 50 now do to catch up to the labor market curve? ”
I agree in principle with what’s implicit there, but if we go down that road (which I’m more than willing to go down), then the whole thing’s pointless.
That is: What would 75bps do to impact the labor market right now? Nothing. What would 100bps do to impact the labor market right now? Again, nothing. In fact, the Fed could cut rates to 0% tomorrow and it wouldn’t prompt Johnny Local to hire anyone right now, this afternoon, that he wasn’t planning to hire this morning.
I mean, if I’m honest, this is all just bullsh-t, right? It’s just pontificating for the sake of it. It’s entertainment. We’re just entertaining each other here. The economy’s going to do what it’s going to do and we — me, you, Jay and everybody else — will cope as we can. But ultimately, there’s no “managing” — let alone micromanaging — a $25 trillion economy. The whole idea of that’s absurd on its face.
I think you can both micro manage an economy (via regulations, mostly) and manage an economy… 🙂
But there fiscal might be a lot more important and a lot more controlled than monetary…
Seems a larger rate cut would make more contemplated projects “pencil out”, at the speed of Excel, and while those projects and their hiring wouldn’t start right away, companies would be more inclined to retain labor in anticipation of starting. Example would be construction projects. The rate cut would also quickly lower borrowing costs, and often rising profits -> less urgency to cut heads. This might apply most to smaller companies with typically more short-dated and variable rate debt e.g. bank loans.
That’s the experience my daughter and her husband are having right now. They have both been unemployed for 18 months from group director level jobs in tech firms where they had salaries modestly into into six figures. One was a victim of an Oracle acquisition and one from poorly thought out acquisition from a private player who changed his mind and essentially laid off the entire company he’d just bought. There aren’t as many jobs at this level as people think. All can be postponed or filled by inside “interims” until something changes or someone better can be found. At these levels flexibility is prioritized ahead of skills and insiders (already being paid) win over outsiders. Rates aren’t an issue in this part of the market. (BTW, I do love your comments.)