The Fed is concerned about inflation and jobs. It’s the latter that will be the bigger problem in the near-term. The Fed is behind the curve in jobs.
Fed FOMC statement
Please consider the FOMC Statement from the Fed’s July 31 meeting (emphasis mine).
Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have moderated, and the unemployment rate has moved up but remains low. Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
The Shift
This is a shift away from inflation towards a balanced look at inflation and jobs.
Regarding jobs, I believe the Fed is behind the curve.
We have a jobs report on Friday, but there will be no solid reason to believe strong jobs growth if that’s what the BLS reports.
Small Business Employment Growth Is Now Negative
I discussed jobs earlier today in Small Business Employment Growth Is Now Negative (and What It Means)
ADP data shows year-over-year payroll growth is negative 88,000 for small corporations sized 20-49. Trends are negative in all but large corporations.
Given serious lags between downturns in the economy and downturns in jobs, coupled with questionable BLS models, I am certain the Fed is behind the curve in half of its mandate.
It’s debatable whether the Fed should have a dual mandate, but it does. And the Fed will react that way. I would not at all be surprised by a 50 basis point cut in September.
the FED is more concerned about it’s third mandate – managing long term treasury dysfunction. Just as Japan hiked rates to control it’s currency and nothing else.
Wall Street and banks want lower rates. They are the FED’s customers. And so it shall be.
Show a 75 year graph of unemployment. Even with revisions, unemployment remains at the bottom of the trough. It’s like an athlete that must inject more stimulant, to continue their record streak. The Fed has to administer more fiat to achieve unemployment lows, seen only 6 times since 1948. The Fed’s dual mandate was amended to the Federal Reserve Act in 1977. It’s an unachievable goal. More liquidity creates inflation. Unless inflation is defined under the narrowest of terms, core inflation.
“It’s an unachievable goal.”
It’s the goal of a stopped clock, to be right twice a day.
The fed follows, it doesn’t lead…yes rates are starting to fall, not because of the fed
Election year…. 50 points it is!
The Fed does NOT have a dual mandate, it has a triple mandate: stable prices, maximum employment and moderate long-term interest rates. They B.S. their way out of all 3 by selectively mis-interpreting the plain language of the actual law that governs them.
I thought that the Feds dual mandate was to achieve 1) stable prices, and 2) maximum sustainable employment. How #1 is satisified with a 2% increase is beyond me.
They forecast like the weather then get amnesia when things change,
I still believe the fed has lost control. They hope to gain it back before everyone realizes they lost it.
Obama tried a regime change in Iran, but failed. Biden didn’t even try. The Iranian
people have no weapons. Eighty percent of them refused to vote in the presidential and the parliament elections, in defiance. The Ayatollah humiliation made them happy and hopeful. They prey that Bibi will eliminate the Iranian dictators. Yesterday the Ayatollah Ali Khameini gave his army and his proxies an order to attack.
Somehow I doubt you’ve ever been to Iran or have any unique information about the country outside of what you read in western media.
We see a decrease in the top line of many discretionary purchase companies, masked in part by accounting gimmicks and headcount reductions to prop up the bottom line; meanwhile, revenues of non-discretionary-oriented companies hols steady or even increases because they have the power to pass along the cost increases to the consumer.
This is hardly the stuff of a solid economy. It’s like a body shutting down lesser organs to keep the remaining vital organs functioning just a while longer until the body expires.
A weaker labor market is not a recession. The economy is just going back to it’s pre-covid levels but everyone is panicking for no reason. Covid caused a spike in unemployment followed by a spike in employment and inflation. The Fed made the mistake of waiting too late to hike and got more inflation which caused them to hike probably more than they needed to. 2 wrongs don’t make a right when it comes to rates b/c it is all about timing. I’ve long said the Fed should have been hiking rates in 2021 and not waited as long as they did (March 2022). By then they should have gone even quicker than they did to 4-5% to stomp out inflation. None of the inflation is b/c of any real fiscal policy but an error by the supposedly independent Fed which we all know is in the back pocket of Wall Street banks and traders. I’d be fine with ending the Fed and going to a true market based interest rate that would better balance investment and saving. This grand experiment needs to end for the good of the American economy.
I think their only mandate should be to keep inflation at zero and remain the lender of last resort in a liquidity crunch.
Why do you love Hitler?
Moronic statement
The Fed should move to 1/8 of a point increments for hikes or cuts. This will give them more granularity should it be necessary. Of course we could dissolve the Fed and just have a flat rate that balances everything. Say around 4.5% and be done with the Fed. Oh nevermind..they have that other stuff on their balance sheet no one talks about.
The economy is choking on the malinvestment made possible by too-cheap interest rates over the past decade or so. The last thing we need is the “growth” that will be eked out with lower interest rates.
Rates today are roughly at their long-term historical levels. If you cannot make a profitable business at these rates, you don’t have a viable business model. I guess I will never figure out how the US economy boomed with rates twice as high in the ‘80s, but it did.
You already stated the reason it boomed in the 80s.
Due to high interest rates there was very little malinvestment.
JP is talking like a trader. The biggest risk is a war in the ME. Today close on SPX is resistance. Why : don’t matter. It might cont up, or decline M/M for a while.
it doesn’t seem like it will make much of a difference either way for this year.
Higher employment doesn’t cause inflation. The Fed’s sole purpose should be to protect the dollar, which means inflation at 0%.
Yes, they should now start to protect the value of the dollar, which has lost 99% of its value under their watch.
The fed has only one mandate: Keep printing their crony banks full of money as the economy plunges into depression.
Isn’t gonna happen
What will the fed do if it cut rates and then inflation and unemployment both move higher?
QE
Money is not tight. But velocity might be falling. Large CD issuance has topped out.
Dr. Philip George: “The velocity of money is a function of interest rates”
A lot of states have tax rates high enough that CDs are losers compared to Treasuries, after taxes.
Algos : F the risk, buy em, squeeze em, then our headline algos scare em and we sell! Rinse, wash, repeat.