Steno Signals #120 – Liquidity and rate cuts are incoming in an already OK economy
Just a few hours after the release of a much stronger-than-expected jobs report, Goolsbee of the FOMC highlighted the risk of undershooting inflation in the US. While Goolsbee is a dovish, soft-leaning member of the committee, it goes to show that you don’t turn around a supertanker like the Fed just because the NFP printed a bit better than expected. The Fed has set a direction, and it will take a lot to convince them not to continue cutting interest rates back toward neutral, around 3%.
It’s not unusual to see a “hiring seasonality pattern” in election years, with a larger pickup in hiring following the election once uncertainty clears. Historically, we’ve seen a strong catch-up during November and December in election years, so it’s possible we could see a decent year-end for labor markets, along with a few rate cuts from the Fed to conclude the year.
It’s hard to construe that as bad news, especially as we approach a scenario where liquidity could be added in size to the US economy again (and potentially in China as well).
Chart 1: Weak hiring ahead of the election and strong after?
A better-than-feared jobs report, although somewhat “clouded” by a large public sector contribution. Overall, it seems like we are getting stimulus for an already stable economy, which is hard to construe as bad news.
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