Payroll Pontifications And More
On Sept 20th Chris Waller in an interview with CNBC said he supported the 50 basis point cut in rates because he saw the Core PCE 4-month annualised rate running at about 1.8%. He was pretty spot on as when we got the release on 27th September the 4-month annualised rate was indeed just over 1.8% with the 3-month annualised at around 2.2% and the 6-month at around 2.5%
This,together with the softening unemployment picture (unemployment at 4.2% in August just off the 4.3% peak AND an initial print on NFP of 142k similar to the revised 144k number in July, led to his comment/ shift in emphasis.
“The point is, we do have room to move, and that is what the committee is signaling,” he said.
This also clearly came after Jay Powell was very concerned about the downward revision by the BLS of the April 2023- March 2024 NFP data.
I argued that Jay now wanted to cut 50 bp's and IF that was the case , it was his Fed, and he would get it- And he did.
Waller obviously supported the move but the use of that 4-month rate annualised was "selective" at best as it was the only annualised period that generated a sub 2% number
Since then the Fed has been more at pains to point out that there is no "scripted path" going forward.
Last month the employment data (whether you believe it or not) showed NFP coming in at 254k (albeit probably revised down tomorrow and an unemployment rate) at 4.10% (rounded up)
Now we just got the latest Core PCE data which remained at 2.7% annualised rather than fell to 2.6% as expected.
Chris Wallers' 4-month annualised rate is now back up 2.4% with the 3 and 6 month annualised rates at 2.3%.
The point here is that IF we get another good employment number on Friday, Waller's reasoning is "shredded"
In the blink of an eye the soft employment/ sub 2% inflation narrative disappears.
What does this mean for the 07 Nov and 06 December meetings?
IF we get a strong number tomorrow, I do not think it is inconceivable that tomorrow afternoon we get a piece from (Vice Chair :-) ) Timiraos pouring a bit of cold water on the idea of 25 bp cuts in both November and December (and maybe even suggesting that no firm decision has even been made about next Thursday)
Such a position would provide maximum optionality (something that the Fed likes)
What if we do get a strong number and we get a Trump Presidency and we get a Red Sweep?
I realise the bar is high to see all these "building blocks" materialise, but If they do, does the Fed really want to move next Thursday?
Maybe they think it is too late to adjust (they didn't the last time) and hold the line. But even if that is the case they will surely temper back expectations about a December move.
Time will tell if any of this materialises but my feeling is with just under 9-weeks to go in the year this is not a potential development you want to go into the next few days on the wrong side of.
