Fed counterattack
of The Federal Reserve System Shocked On Wednesday, the central bank announced it would not cut rates until it was confident that inflation was heading toward 2%.
The Fed said in a statement at the end of its two-day monetary policy meeting: “Until there is greater confidence that inflation is on a sustained path toward 2%, the Committee does not believe it is appropriate to lower the target range.” I don’t think so.”
Many expected Fed Chairman Jerome Powell to use the press conference to push back on expectations for a March interest rate cut. No new languages were expected to be included.
Powell said at a press conference:Almost all participants The Fed agreed that a rate cut would be appropriate. But he added that more data is needed to be more confident that inflation is indeed sustainably heading toward 2% before the Fed is ready to pull the trigger.
You shouldn’t realize that and run away. Chairman Powell did not say there was unanimity. Regarding the view that interest rates are likely to be cut this year.He said largely All Fed officials agree. This could indicate that at least one member of the Federal Open Market Committee does not believe interest rates will be lowered this year.
Jolting job openings in December
announced by the Ministry of Labor Recruitment/turnover rate survey (JOLTS) reported on Tuesday. The number of store openings in December exceeded expectations at 9.026 million, exceeding the upwardly revised 8.925 million in November.
The JOLTS report is more up-to-date than it appears at first glance. The latest numbers are officially for December, but they are based on store openings as of the last business day of December.So it’s actually Labor demand heading into January.
Therefore, we entered January with more job openings than expected. Furthermore, this Number of job openings increases for 2 consecutive months. This is also the second consecutive month he has revised the previous month upward. The preliminary figure for November was 8.79 million cases. The October figure was revised upward to 8.852 million from 8.733 million the previous month.
The number of job openings has been on a downward trend since its peak of 12,027,000 in March 2022. There have been waves in the decline, but the only time it reversed for two consecutive months was in November and December of 2022. Sharp rise in consumer price index in Januarythe monthly inflation rate (as measured by the consumer price index) rose from 0.13 percent to 0.51 percent.
It is unlikely that we will see a similar rise in inflation in January. Large inventories built up late last year helped boost gross domestic product (GDP), and increased supply is likely to keep prices in check in January.of Cleveland Fed Inflation Nowcast The rate of increase in January was only 0.18%. Last year, Nowcast accurately predicted that surge.
The real risk from the upward trend in job openings over the past two months is that the labor market will tighten again. An important measure of labor market tightness is the ratio between the number of job openings and the unemployment rate, known as the vacancy rate. His 60-year average for this indicator was about 0.6%.of High employment, pre-pandemic Trump boom The rate rose to 1.2%, the highest since the late 1960s.
In the immediate aftermath of the pandemic, the vacancy rate was a better indicator of labor market tightness than the unemployment rate. Many analysts believe that the Fed’s focus on unemployment rather than vacancy rates is one reason it underestimated the strength of inflation pressures in 2021 and 2022 for so long.
In fact, many Fed economists assumed that vacancy rates would fall to historically normal levels. If they thought it would surpass the previous record of about 1.5 percent set in the 1960s, they forgot to tell us.This assumption served to justify The Fed’s view is that inflation will decline rapidly.
What happened was that the vacancy rate soared to an all-time high of 2:1 and inflation rose to its highest level in 40 years. Perhaps more importantly, vacancy rates did not return to anything close to historical norms. According to his latest JOLTS report: It rose for two consecutive months.
This is an indicator that at least Risk of rising inflation It remains much stronger than many market prices suggest and many investors assume. This may be one reason the Fed believes it needs more evidence that inflation is firmly on target before it can justify cutting rates.
