Can the economy soft land? Friday’s job report shows there’s a clear path to get there. Mortgage rates have dropped significantly to 6.20%, more than 1% below their 2022 highs.
With the bond market recognizing that wage growth was slowing, the Federal Reserve had little reason to keep talking about rate hikes.
4.5 million jobs were created last year, ending 2022 on a solid note. Today, he still has over 10 million job openings and unemployment claims are at historically low levels. And now inflation growth is declining.
Bond yields fell after the report. federal reservestrategy. The Federal Reserve will not tolerate a tight labor market or that Americans at the bottom of the wage pool are making more money. The fact that wage growth is slowing is a positive sign as we believe it will stick.
If inflation and wage growth are slowing, the Federal Reserve doesn’t need another rate hike. In fact, the Federal Reserve needs its own reset. If this trend continues, it will be a big theme in 2023.
But the bigger story here is that America has a path to a soft landing, and the Fed should be ashamed of believing that an unemployment-driven recession is the best way to keep inflation in check. Rates have already fallen and the labor market remains strong.
With a more real-time tracking system for haven inflation, key inflation data would already be low. Thankfully, the Fed created its own index to explain much of the lagging inflation in the data line. This is a big problem as nearly 43% of CPI inflation is sheltered inflation.
That’s why Friday’s data is exciting and why the bond market pushed mortgage rates up to 6.20%. It wasn’t so long ago that people were talking he was talking about 8%-10% mortgage rates and a big recession in the United States (October).
job report
from BLS: Total nonfarm payrolls rose by 223,000 in December while the unemployment rate fell slightly to 3.5%, the US Bureau of Labor Statistics reported today.Leisure and hospitality, health care, construction and social services saw a notable increase in employment
This graph shows the breakdown of created and lost jobs. Two sectors of the economy that have been hit are the technology sector and housing, but this is a good report for construction. increase. I can’t tell you how much a blessing this is because the best way to fight inflation is always to increase supply.
Click here for a breakdown of the unemployment rate by educational background for those aged 25 and over.
- Below high school diploma: 5.0% (Previously 4.4%)
- High school graduates with no university experience: 3.6%
- University or Associate’s Degree: 2.9%
- Bachelor’s degree or above: 1.9%
As we saw above, the labor pool of college-educated workers is in short supply. This is a big reason why the unemployment rate is below his 2%. The supply of labor through work visas is not sufficient to supply this pool.
The unemployment rate has bottomed out at around 3.5%, and I would like you to reaffirm that despite the unemployment rate remaining at 3.5%, the inflation rate is declining.
You don’t have to trigger an unemployment recession to keep inflation down. I understand why some people believe this. But before COVID-19, other mature economies with slowing population growth did not experience breakaway inflation in the 21st century either.
Inflation and bond yields
The real story today is that bond yields are above the Federal Reserve again. No matter how much Fed officials say a tightening in financial conditions is needed for months, the bond market says otherwise.
Everyone needs to push back on the Fed’s premise that an unemployment-driven recession is needed to keep inflation under control. We would have had a different conversation if inflation was still out of control and wage growth was exploding higher. I truly believe that you have shown that
Inflation and bond yields rose in the 1970s, and inflation was more entrenched at the time. As I speak, the 10-year yield on Friday he is at 3.58%. Core PCE inflation growth, which the Federal Reserve wants to return to his 2%, should have three handles this year.
I advocated for lower mortgage rates on October 27, 2022 and wrote about how we can avoid the unemployment recession of November. In both articles, one factor was important. That is lower inflation. This is happening even in a labor market with over 10 million vacancies today.
The second key is lower bond yields. We have not yet discussed the cut rate. First of all, inflation growth will slow, and bond market yields will fall with it.
So far, both have fallen from their recent peaks. The Fed has failed to control Russia, OPEC, or the bird flu, and the US dollar has not collapsed. However, it is their responsibility to raise rates at this point. They have expressed a belief in raising the Fed’s funds rate to core PCE levels, and if inflation trends continue, the 10-year yield is more accurate than his current Fed.
In summary, we had another solid hiring report on Friday. Unemployment is low, job openings are high, and unemployment claims are historically low. I truly believe that at this stage of the expansion, the Fed need not continue on what sounds like a hawk.
Remember that the biggest driver of inflation in the CPI report is shelter inflation, which has already cooled dramatically.
The Fed has front-loaded so many rate hikes early on that at some point it should consider becoming a dual authority again. They should just leave it at that and watch the data improve. But the last few months have been very encouraging for those who don’t want a recession caused by unemployment.
