The Fed's premature easing of monetary policy is the biggest risk in 2024.
The late economist Paul Samuelson once quipped that there have been nine of the last five recessions. At present, the market is digesting the expectation that the Federal Reserve will cut interest rates six times this year, has it made the same mistake?
Data from the CME FedWatch showed that the federal market on Friday (Jan. 5) expected the interest rate target range to fall to 3 by December this year75% to 4%, while the Federal Open Market Committee's (FOMC) recent Economic Summary** shows that the interest rate target range will not fall to 3.5% until the end of 202575% to 4%, and the Fed expects to cut rates three times by 25 basis points by the end of the year.
* The market is also pricing in the first rate cut coming after the FOMC meeting on March 19-20. While the market does not expect any action from the Fed at its meeting at the end of January, there is a lot of anticipation for spring.
The idea that the Fed will begin to reverse its tightening stance is based on the assumption that inflation is falling towards the 2% target and that at the same time, the US economy is weakening, especially as reflected in the labor market.
Although the speed of prices has indeed slowed down, it can be said that the impact of the Fed's interest rate hike on aggregate demand is not as great as the impact of the easing of restrictions and the decline in energy.
Last Friday's December jobs report provided the basis for almost everyone's differing views on the economy. Nonfarm payrolls rose 21 percent in December60,000, about 40,000 more than expected, but the revised data showed that the total number of new jobs in November and October fell by 710,000, with an average of 16 new jobs per month50,000, about half of the mid-2022 level.
The increase in employment was also reduced by the average number of hours worked per week1 hour, to 343 hours offset. While the unemployment rate (from another survey of U.S. households) held steady at 37%, but this is due to a significant reduction in the labor force by 6760,000, almost a decrease of 68 with the number of employed people in the statisticsThe data of 30,000 is equivalent. This illustrates a decline in the labor force participation rate, which fell from 62 in December from 62 in November8% to 625%。
Average hourly earnings rose by 04%, flat month-on-month, year-on-year **41%, compared to a 4% year-on-year increase in CPI in November. But Steven Blitz, chief U.S. economist at TS Lombard, noted that real wages have been recovering rapidly after negative growth in 2022, when inflation was at its peak**.
Wage growth for factory workers has been particularly strong. Joseph Carson, the former chief economist at AllianceBernstein, wrote on his blog that the wages of non-managers in the manufacturing sector in November were **0After 8%, it was ** 09%。He pointed out that this is the fastest wage for manufacturing workers in 40 years.
The wages of manufacturing workers can be traced back to agreements reached by the United Auto Workers (UAW) with U.S. automakers. "Let's not forget that Toyota, Honda, Tesla, and many other companies have reached an agreement with UAW to raise wages by 10% or more, effective in January, so the momentum of the big ** wage increase for manufacturing workers will continue," Carson wrote. ”
So far, the slowdown in inflation has been largely reflected in goods**, with the PCE price index, the Fed's preferred inflation measure, falling seasonally adjusted annualized by 2 percent over the last six months3%。JPMorgan Chase & Co. (J. Morgan).p.Daniel Silver, an economist at MORGAN, noted in the research note that this is a much larger decline than previous "disinflation" periods, such as during the pre-pandemic economic expansion or between 1998 and 2019.
Silver also noted that the pullback in headline inflation is largely due to declines in food and energy** that are affected by "non-economic" factors, but Carson noted that strong wage growth for manufacturing workers and steady growth in the services sector could lead to a more than 5% increase in corporate pay costs this year. The pace of labor growth that is inconsistent with inflation slowing to 2% will put the Fed in a dilemma.
Steven Ricchiuto and Alex Pelle, economists at Mizuho Securities, wrote in a note to clients that the Fed's premature easing of monetary policy is the biggest risk in 2024, and that a premature rate cut would reduce the likelihood of a "soft landing" for the economy, and the dollar could also be a dollar and trigger another acceleration in inflation.
As a result, Mizuho expects the Fed to choose to stay put, and the market's current interest rate cuts will prove wrong.
Text |Randall W. Forsyth
Edit |Guo Liqun
Copyright Notice: Barron's original article, without permission, may not**. For the English version, see January 5, 2024, "Rate cuts in the spring?." the jobs numbers aren’t convincing.”。
The content of this article is for informational purposes only and does not constitute any form of investment and financial adviceThe market is risky and investors should be cautious. ）
Market analysis.