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The Risk-On, Risk-Off Fed-Jobs Tactical Equity Matrix
I'm going to eschew the temptation to make jokes about highly-paid forecasters stating the obvious. But you're free, as always, to write your own such jokes.
Since last week's Fed decision, equity strategists all around Wall Street have determined that the trajectory of monetary policy for the balance of the year will hinge in no small part on the evolution of the US labor market.
In other words: If it's clues about the Fed you're after, a good place to start is with the incoming jobs data. I'
Why is no one talking about a possible pause and 50 in December? GDP trending at 3% and if NFP/UR comes in strong I’d think Powell would want to keep that option on the table. Swaps are essentially pricing a 0% probability of a pause in November but are pricing in ~25% chance of 50bps cuts through the December meeting. Who’s right?
Yeah, November “pause” odds were woefully mis-priced already. Now they’re priced like lottery tickets, which is to say priced as though the Fed will cut on November 7 no matter what the data shows.
Maybe that’s right. And it’s important to remember that a mispriced / misplaced bet isn’t necessarily a bet that’s going to pay off if you take the other side.
But I don’t think the odds of a “pause” in November are 0%. If they are, then this whole thing is asinine. Read Goolsbee’s comments on Monday. If we’re just so hell-bent on cutting 200bps over the next 9-12 months that by God nothing’s going to stop us short of, you know, 750k NFP, 2% UNR and 17% headline CPI, then we may as well just call Fed funds 3% now and be done with it.