The Fed will pivot once the Unemployment Rate goes above Inflation.
🟠Inflation currently 5.0% YoY
🔵Unemployment Rate at 3.6%
Not quite there yet. But getting close.
A bad jobs report in April or May would do the trick.
🟠Inflation currently 5.0% YoY
🔵Unemployment Rate at 3.6%
Not quite there yet. But getting close.
A bad jobs report in April or May would do the trick.
1) The Fed has a dual mandate to a) maximize employment and b) keep prices stables.
So long as Inflation is ABOVE Unemployment, they are satisfying max employment but failing on stable prices.
And thus they need to keep rates elevated. It's pretty simple, really.
So long as Inflation is ABOVE Unemployment, they are satisfying max employment but failing on stable prices.
And thus they need to keep rates elevated. It's pretty simple, really.
2) Which is why betting markets are still pricing in a 25bps rate hike at an 83% probability.
There's a problem though. And that's that Inflation and Unemployment Rate are "lagging indicators" of economic health.
So the Fed is making their decisions based on stale data.
There's a problem though. And that's that Inflation and Unemployment Rate are "lagging indicators" of economic health.
So the Fed is making their decisions based on stale data.
3) For instance - retail spending by consumers just fell hard in March. 1% monthly drop. Which is BIG for one month.
This drop in spending is coming at a time when Wall Street corps were already reporting a big decline in earnings.
Those earnings will likely get worse.
This drop in spending is coming at a time when Wall Street corps were already reporting a big decline in earnings.
Those earnings will likely get worse.
4) Declining Spending / Corp Earnings is also coming at a time when Banks are tightening the screws on lending.
March saw the biggest monthly drop in Bank Credit in US History. 📉
On par with the depths of what occurred in the GFC.
March saw the biggest monthly drop in Bank Credit in US History. 📉
On par with the depths of what occurred in the GFC.
5) All the while - the Fed is STILL tightening monetary policy.
In an declining spending, earnings, and bank lending environment.
Kind of insane when you actually think about it. However, Inflation is still above Unemployment, so Fed has to hike.
In an declining spending, earnings, and bank lending environment.
Kind of insane when you actually think about it. However, Inflation is still above Unemployment, so Fed has to hike.
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