⚡ Rate Cuts are coming, but not just yet
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The January Fed meeting did not bring any surprises. The FOMC left the Fed Funds rate unchanged at 5.25-5.50% but acknowledged more directly that the next move would be a cut.
The most important message, which Chair Powell made clear during the press conference, is that labor market weakness is not needed to get the FOMC to cut.
What was also implicit in Chair Powell’s comments was that if labor market weakness were to manifest, it would have the effect of bringing earlier and deeper cuts.
LABOR MARKET WEAKNESS
The point about labor market weakness not being necessary for the Fed to cut is critical, as the January employment report did not betray any sign of weakness whatsoever.
There is no denying that the US labor market remains robust.
The economy added 353k jobs (beating all forecasts) and there was a record 126k upward revision to the prior two months.
This revision highlights the very first data problem.
Under normal circumstances, revisions should show no skew or pattern, they should be what statisticians call a “random walk”.
In reality, payrolls revisions have been anything but random.
RATE CUTS
150 bp worth of cuts this year, which is double the median in the December Summary of Economic Projections (SEP) but in line with market pricing.
March SEP will show at least some committee members willing to entertain deeper cuts given the much-improved inflation data.
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Ale
Disclosure
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.