Inflation is accelerating everywhere you look
As evidence continues to pour in that the U.S. remains in an inflationary economy, it is becoming more likely that the Federal Reserve is in an inflationary economy. Forced interest rate increases can no longer be ignored.
Compensation costs for public and private sector employers rose 1.2% in the first quarter, the Bureau of Labor Statistics said Tuesday. This is an acceleration from his 2023 pace of 0.9% last quarter. Largest increase since Q2 2022.
Annualized growth rate for the first quarter is: Compensation costs increased at a pace of approximately 4.8%. That’s more than double his pre-pandemic quarterly average of 2.2% per year. By most estimates, a rise in the Employment Cost Index (ECI) of much more than 3% would be inconsistent with the Fed’s 2% inflation target.
Rising employment costs once again caught analysts offside.much remains tied to a narrative of a “softening” of the labor market In this region, unemployment rates are increasing slowly, the number of job openings is decreasing, and compensation costs are moderate.
Overheating labor market
However, the data runs backwards. The economy added 256,000 jobs in January, 270,000 in February and 303,000 in March. For those in the back of the classroom, Average 276,000That’s a big increase from 212,000 in the last three months of last year.
Unemployment claims, typically a leading indicator of a softening labor market, have not made any progress. There was an eerie calm in a series that is notorious for its weekly fluctuations. Eight of the past nine weeks, his claims numbers have been within 3,000 of his 210,000. Five of those weeks had exactly 212,000.
The unemployment rate fell to 3.8% in March, exactly the same level as from August to October last year. It fell to 3.7% in November, December and January. When it rose to 3.9% in February, many economists were quietly relieved (you shouldn’t celebrate rising unemployment), but that didn’t last long.
According to the employment statistics for April, the number of employees is expected to reach 250,000. If that’s true, the three-month moving average would fall to a still very high 274,000. Unless revised downward in earlier months, his 256,000-plus number in January means the three-month average will increase. Goldman Sachs just announced it expects to hire 275,000 people.This brings the three-month average down to 283,000.
Rapid changes in labor market and inflation data
This is not how things seemed to be going, at least in the opinion of establishment economists and Wall Street, just a few months ago.meanwhile Breitbart Business Digest Most economists agreed with his warning that the economy was accelerating, the labor market was gaining strength and inflation had stopped falling and was showing signs of accelerating again. “Soft landing” theory Inflation will fall without major damage to the labor market or growth.
Here it is Jerome Powell speaks at the Federal Open Market Committee press conference in January.This happened to happen on the same day that the Bureau of Labor Statistics reported that ECI increased by just 0.9% in the fourth quarter.
The economy has largely normalized, and the labor market is also normalizing. And that process will likely take some time. So wage setting is something that happens, and it is, but it will probably take years to reverse. that’s ok. Are you okay. But the evidence, as some of you saw in his ECI presentation today, is that wage growth is still at a healthy level, a very healthy level, but gradually it’s becoming more relevant. It is returning to a high level of sexual quality. Assuming assumptions about productivity, more generally he is associated with 2% inflation. I think it’s an ongoing process, a healthy process, and moving in the right direction.
We are now going in the opposite direction. wrong direction.
On February 1st of this year, we warned that data showed the Fed would likely not be able to cut rates until November. At the time, the futures market was pricing in a 95% chance of a rate cut at the May meeting (the current meeting).
“There is quite a possibility.” The Fed won’t be able to cut interest rates at all this year.. As we have been warning, there are many reasons to be concerned that inflation will accelerate. “If that happens, the Fed could be taken off the table for rate cuts this year,” we wrote.
A week later, we warned that accelerating inflation could mean the Fed’s next action. It could actually be an increase, rather than a decrease as Wall Street believes..
Inflation, which was a concern, has accelerated. The personal consumption expenditure (PCE) price index, which the Federal Reserve is closely monitoring, rose explosively in the first quarter of this year to an annualized rate of 3.4%, up from 1.8% at the end of last year. Core PCE inflation rose from 2% to 3.7% annually.
Wall Street still expects rate cutsHowever, the futures market now agrees with our analysis from three months ago that the Fed could hold off until its November meeting. It’s very likely that Fed officials also believe they will cut rates at least once this year, but we believe more Fed officials may believe they will have to wait until next year in their next economic outlook summary. There is.
But where does the disinflation that justifies rate cuts come from? Increased employment and increased compensation costs will Inflation is deeply rooted. The expiration date for what appears to be a volatile and staggered effect of the last Fed rate hike is approaching. Fuel prices are rising rapidly, and we’re not even into the summer driving season yet. Massive cross-border immigration is fueling government overspending, with direct increases in demand for housing, food, and other services that more than offset the benefits of additional workers. I am.
It would be highly unwise to wait until next year for the Fed to start hinting that its next action may be to raise rates. If voters return control of the White House to Donald Trump, It would look extremely political if the Fed suddenly decided to raise interest rates. And it could jeopardize the independence that central banks so fervently protect. It would be much better to at least start talking about that possibility sooner.
in short, The Fed should start talking about raising rates as soon as possible. It would probably be too much to expect Jerome Powell to take such a hawkish stance at tomorrow’s press conference. But a wise Fed would not wait much longer.
