Jayson Bates’ Post

Odds of a September 2024 rate cut jump to 53% after the weaker than expected jobs report. The base case now shows TWO interest rate cuts in 2024, up from ONE prior to the report. On Wednesday, Fed Chair Powell specifically said weakening of the labor market could spur rate cuts. Market implied odds of zero interest rate cuts this year have dropped from 35% to 27%. The Fed rollercoaster ride continues. Markets have gone from pricing-in 6 rate cuts down to 1 and now back up to 2. Further weakening of the labor market could prompt 2 or more cuts this year. But the question remains, what about rising inflation? https://lnkd.in/d6dAtC8Z

I must be missing something. I’m just not getting the argument from some analysts that the Fed is behind the curve. The US economy is currently growing at around a 2.5% pace (Atlanta Fed GDP Now). Forward indicators are pointing to a slowdown ahead, but the landing appears to have “soft” written all over it. And while the Fed may not be looking for any further deterioration in the labour market, September payrolls exceeded expectations at +254k, the prior two months were revised up by a combined +72k, the unemployment rate fell for the second consecutive month to 4.1% and wage growth came in higher than expected at an annual rate of 4.0%, still well in excess of the level consistent with 2% inflation. Markets have been framing the FOMC’s next decision as a 25 vs 50bp cut. Surely doing nothing should at least be part of the conversation? The Committee will likely cut by 25bp in November but expect a pause before too long.

Odds of a September 2024 rate cut jump to 53% after the weaker than expected jobs report, according to @Kalshi. The base case now shows two interest rate cuts in 2024, up from one prior to the report. On Wednesday, Fed Chair Powell specifically said weakening of the labor market could spur rate cuts. Market implied odds of zero interest rate cuts this year have dropped from 35% to 27%.

So what now? Pundits have asked the Fed not to be so cautious, and ignore the data for the noise. And the noise seems to signal that inflation is stubborn. So ignore the data? "Policymakers have also been hesitant to cut interest rates given the strength of the labor market. A separate report Tuesday showed real earnings continued to rise on an annual basis, extending a months-long streak in which wage growth has modestly outpaced inflation. Data data out last week showed hiring remained healthy in February even as the unemployment rate jumped to a two-year high." Jobs are strong. Housing seems to be ok. S&P seems robust. And if prices are up, then consumption seems good too. Where is the complaint about the interest rates coming from? My guess - people managing speculative assets or managing assets speculatively.

Following the weak jobs report in August that left many on Wall Street questioning the prospects of a “soft landing,” we’ve seen a bit of unrest in markets over the last few weeks. Remember, a soft landing includes cooling inflation back to the Fed’s 2% target while maintaining a healthy labor market. With the first rate cut in over four years on the horizon, we will be keeping a close eye on the two reports that the Fed’s decision will likely depend on, the August payroll (Sep. 6) and August CPI (Sep. 11). If these two data points continue their recent trends, there is little doubt we’ll see the Fed begin easing monetary policy in hopes of a soft landing for the U.S. economy. Read the full update here: https://lnkd.in/gyrveQu9

📉🔍 Economic Update: Despite mixed signals from PCE and the jobs report, #FedRateCut seems likely. Payrolls disappoint, inflation nears target, but investors are cautious as earnings show mixed results. S&P cools down after a hot streak. 🔍✨ Stay ahead of the curve with our commentary. https://ow.ly/K8IJ50TZJr9 . And don't forget to vote! 🗳️ #MarketInsights #InvestmentTrends #PlimouthAdvisors

▶️ According to the U.S. Bureau of Labor Statistics report released today, the U.S. PPI for September remained unchanged from August. Year-over-year, the index increased by 1.8%—the smallest rise since February. The Core PPI rose by 0.1%, matching the smallest increase since May 2023. The market continues to expect the Fed to cut interest rates by 25 bps next month. ▶️ The Fed unexpectedly cut rates by 50 bps after several months of cooling inflation and a period of slower payroll growth. Since then, reports have indicated stronger job gains and persistent inflation, leading economists to lower their expectations for the Fed's rate cut in November to 25 bps. ▶️ The PPI report showed that service costs increased by 0.2%, a weaker rise compared to the 0.4% increase from the previous month. Core goods prices increased by 0.2% for the third consecutive month.

🔔 Fed Chair Powell: More Data Needed to Cut Rates Here is all you need to know: 1️⃣ Friday's jobs report showed weakness: only 114,000 jobs added in July, downward revisions for earlier months, and softer wage growth (3.6% vs. 3.8% in June). 📉 2️⃣ Unemployment rose to 4.3%, signaling a slowdown in the labor market. Concerns are growing that the Fed is behind schedule on rate cuts. 📊 3️⃣ Despite the weakening labor market, the economy is still growing with a 2.8% annual GDP rise in Q2. 🏦 4️⃣ The FedWatch tool shows a 70%+ chance of a 0.5% rate cut in September. Markets are cautious, but there are emerging opportunities. 📉 5️⃣ Lower rates could boost sectors like real estate and consumer staples. 📈 Source: WSJ

The first Friday of each month markets are eagerly awaiting the employment figures of the month before for the US. Today, the headline payroll figure was close to expectations (in red is the actual number vs. the expectation for each month), in contrast to the month before where only 12k (revised to 36k today) new jobs were created as opposed to >100k that was expected.  However, the market reaction to the numbers so far has been driven by the rise of the unemployment rate to 4.2% which it was higher than the 4.1% expected. The initial bond rally to the numbers that fizzles out now along with the positive but muted stockmarket reaction, seem justified as the hourly earnings came out stronger than expected (+4% YoY vs. 3.9% expected). [AND] In the end it is the inflation that needs to cool down considerably before the FED proceeds more aggressively with its rate cuts. On that note, next week’s CPI figures for November on Wednesday are what markets are really focusing on as it will give credence to FED’s decision on rates on December 18, which currently stand at little less than a coin toss based on market expectations.