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Fed Math: 3% Growth, 2.8% Core Inflation, 218k Jobless Claims = 50bps Cuts
If the US labor market's Clark Griswold driving full-speed through a "road closed" sign on the way to crash-landing in the desert, somebody forgot to tell jobless claims.
For the second week in a row, the initial claims headline printed a four-month low, this time down at 218,000. The prior week's headline, which captured the NFP survey period for September, was revised higher by 3,000, to a still-low 222,000.
As the figure below shows, we're staring at levels last observed in May. The four-we
I have mentioned several times that I believe Powell is a good guy w/ a big heart. Unfortunately, his heart seems to repeatedly get in the way of a reasonable perspective about market participants’ tendencies. Powell repeatedly forgets that those who bleed green and worship the almighty dollar are running markets (at least for now). Give them any reason to keep gunning stocks and they’ll run w/ it.
Powell should have listened to H and others who recommended a 50bps cut, then a “let’s wait on the data” approach before the Nov and Dec meetings. He’s getting very close to putting himself in a very tough position on inflation and markets–again. Rising inflation and increased volatility in markets will gradually, and perhaps suddenly, cause economic conditions that hurt, not help, the lower income folks he genuinely cares about.
And look, there’s nothing “wrong” with cutting 50bps on November 7 if we get there and it turns out the data supports it. There’s nothing “wrong” with cutting 100bps on November 7 if the data supports it. The only issue I have is with this compulsion they’re exhibiting not just for pre-judging the very next meeting, but for pre-judging the very next meeting the very next day after the most recent meeting.
And economists models are still off balance – else this jobless surprise would not have happened – consistently – time to fix the models boys and girls
Glad you pointed out that the cut in November talks started the next day. I thought what the hell is going on or on today’s world WTF!
I think its still early to draw conclusions. Its clear the governors are cut happy, but we still have two employment reports and we’ve seen Powell successfully shift mainstream expectations before. It really only matters what Powell thinks and he’s conscious of his predecessors’ outcomes in prior cutting cycles. When stocks are breaking record highs, unemployment at record lows, the Fed cuts less and slower. The market and apparently the impetuous committee seem to forget this cutting cycle is not because of economic crisis.
The more leading indicators of the economy are slowing. Most employment metrics are lagging or at best coincident. So I am sad to say I believe you are constructing a straw man argument and knocking it down. In fairness, you do cite a risk management approach which I believe is correct. So I give you credit there. The Fed’s job is to maintain steady price growth and employment. Real target rates are high. Inflation is slowing, and the Fed’s job is a balancing act and they know that inflation at least for now is coming to target. Therefore, they are supposed to cut rates. Why chance a recession when your inflation target is in view? In fact on a 3 month moving average inflation is slightly below target…
“So I am sad to say I believe you are constructing a straw man argument and knocking it down.”
No sh-t.
‘I’m just joking. She spoke at Harvard.’
I spit my coffee out;)