I think that’s what a lot of people are hanging their hat on: In the fourth quarter of 2023 you’re going to see a very sudden deterioration in the labor market. It’s usually the last to fall and when it falls, it typically spirals fairly quickly. The labor market is typically the most lagging indicator within a slowdown. How realistic do you think that is given recent data? Some investors are still betting on a rate cut this year. So I think there’s a very strong case to be made that there will be another hike in the next two meetings. Even getting it below 3% is going to be very difficult this year. And as long as the labor market in particular is adding jobs at this level, it’s very difficult to see a scenario where inflation can come even close to a 2% level. There are segments of the economy like manufacturing which are struggling, but other parts, like services, are still very strong. And you throw that in with the high inflation numbers that have been coming out recently and there’s a clear picture of economic strength. Still, a lot of the data focused on the labor market is showing some very strong resilience. If policymakers are looking for a caveat, and it seems like Powell wants to pause in June, this will give them a perfect excuse. The headline figures for the labor market are really strong but the unemployment rate rose and wage growth has slowed. Seema Shah: June is tough to call at the moment. This interview has been edited for length and clarity.īefore the Bell: Do Friday’s employment numbers make it more difficult for the Federal Reserve to justify a pause in rate hikes at their June policy meeting? Investors are pricing in an 80% chance of a pause in June and a 40% chance of rate cuts by December, according to CME’s FedWatch. By January, 2024, the odds of a cut rise above 60%.īefore the Bell spoke with Seema Shah, chief global strategist of Principal Asset Management, about the divergence between Wall Street, the economy and the Fed. That makes it more difficult for the data-dependent Federal Reserve to justify a pause to interest rate hikes at its June meeting.īut while investors would typically worry that a strong jobs report could fuel further rate increases, Wall Street is still betting on a Fed pivot around the turn of the year. In this good-is-bad economy, strong employment and higher wages mean higher inflation as companies pass on increased labor costs by raising the price of goods.
May saw payrolls increase by almost double the average monthly gain in the 10 years before the pandemic, while the Federal Reserve’s preferred inflation gauge bounced higher in April. The past month’s economic data has highlighted the persistent, sticky nature of inflation and the resilient strength of the labor market in the United States.Įconomists say that could mean more rate hikes from the Federal Reserve are coming, but investors appear sanguine.
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