All signs are pointing to the Fed raising interest rates in March after another jobs report that shows an ever-tighter labor market wsj.com/articles/jobs-…
To understand how the Fed will react to this report, it is best to not pay much attention to the supposedly underwhelming payroll print. Those have been revised higher in recent months.
Instead, look at signs of labor market tightness via the:
• rising prime-age employment rate (it has jumped a full percentage point, from 78% to 79%, since August),
• a falling unemployment rate (U-6 is at 7.3%, just three tenths above Feb 2020 level),
• and rising wages.
And keep in mind, it is not just elevated inflation that contributed to Powell's dramatic policy pivot in November.
The labor market dynamics and signs of much stronger demand in the economy have played at least as important a role.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
Several former Fed officials have commentaries today that all say the same thing.
Here's Larry Meyer: "Yes, the FOMC is behind the curve. A dangerous place to be, especially if the FOMC is very far behind the curve, as I believe is the case today."
1/
Former NY Fed President Bill Dudley says the central bank's latest economic projections amount to a dovish "fantasy" that inflation can return to 2% with rates gently rising up to 2% over the same three year timeframe
One question I’m getting a lot is how a Brainard Fed would be different from a Powell Fed on rate policy? We laid some of that out in this story today. I’ll elaborate in this thread.
The short answer: They've stated similar views on inflation and policy wsj.com/articles/biden…
But because policy could be nearing an inflection point and because no one at the Fed has had to deal with a problem like the current one, there’s perhaps less certainty about the Powell reaction function or the Brainard reaction function, and any differences therein.
(Note: This isn’t intended as a commentary on the political horserace, I.E., who's up or who's down, which doesn’t feel like it has changed all that much since the summer)
Powell is really underscoring the uncertainty associated with policymaking today. "We have to be humble about what we know about this economy." We thought the economy was heading to one destination until Delta came along.
Powell: We thought schools reopening and elapsing unemployment benefits would boost labor supply. That wasn't the case.
The learning for those of us who lived through the last cycle, over time, maximum employment can be somewhere different than anticipated.
Powell: It is very possible that the Fed has already met its inflation test for liftoff. The inflation language in the forward guidance might be a little stale.
This week’s Fed meeting—and Powell’s press conference on Wednesday—is a higher stakes event than seemed likely a few weeks ago after markets reacted to potentially hawkish shifts by central banks in Canada, the U.K., and Australia wsj.com/articles/centr…
The Reserve Bank of Australia stunned investors when it declined last week to defend the 0.1% target on bond yields that mature in Apr ‘24, fueling expectations that it will scrap yield curve control at Tuesday’s meeting. “If so, this is a startling about-face,” said one analyst
The Bank of Canada surprised markets last week when it ended its government-bond-purchase program and moved up the time frame for when it might first raise its benchmark interest rate from its current near-zero level.
Jay Powell reaffirmed the Fed’s emerging plan to start scaling back its stimulus policies this year, and in considerable detail, he elaborated on his expectations for receding inflation and the mistakes of overreacting to a temporary price surge wsj.com/articles/powel…
Here's the chart that's worth quite a few words from Jay Powell's speech
Powell's inflation dashboard
1) Higher prices aren't broad based 2) Surge-price categories are moderating 3) Wages don't suggest "excessive inflation" 4) Long-term expectations have only increased a little 5) Little reason to see global disinflationary forces reversing overnight