Maybe inflation isn't that bad after all!
The three-month core inflation rate
That is a material drop, even if it feels like a slightly hand-picked number. And even 3% inflation is a full percentage point over the Fed's goal of 2%. But the trend is what Waller's trying to focus on, because if that trend continues then maybe the Fed does not need to raise interest rates like many are suggesting.
Was this speech heard on Wall Street? Maybe. The odds of a hike dropped from 63% on Wednesday to 50% on Thursday, according to the
How the Fed interprets what's happening in the economy is almost as important as what's actually happening in the economy, given the Fed's ability to influence the economy. But the new Fed chair has consciously and publicly
To be clear, the official inflation numbers are still far too high. The Consumer Price Index showed inflation at an overall 3.4% rate in July. And while that's down from more than 4% in May, it is up from about 2.4% in February, before the Iran war started.
So, it's a good-ish trend. There's another trend that is also headed down that isn't as bright.
This morning we will get the August jobs report. After July's loss of 23,000 jobs it seems most are expecting a rebound. Bank of America expects 40,000 jobs were created. Jefferies expects 85,000. CNBC pegged the consensus number at 53,000.
But here's the thing, and I mentioned this last month: what matters isn't any one month's numbers. What matters is how any one month's numbers affects the long-term trend, because the long-term trend has not been good.
Over the past five years the number of jobs being created has been steadily getting lower and lower. Over the past two years, the economy has added only an average of 47,000 jobs per month. In the past year, it had added only 26,000 jobs per month.
The jobs market is tepid, at best, and inflation is still too high. These are the most important numbers that will be released between now and the start of the next Fed meeting on the 16th, but how will the Fed interpret them? How committed is Kevin Warsh? The Fed chair, in his Jackson Hole speech, certainly
I'm not saying they should raise rates. I am saying that if they really, really wanted to bring down inflation they could do it by raising rates. But they've also got to keep an eye on the jobs market. Raising rates will only exacerbate the problems showing up in the employment figures.
Read more:
Bitcoin's Overton window of opportunity is closing Maybe Wells Fargo's unions need a blockchain Iran built its own financial system, and has created a cyberfront in the war Fed meetings are about to get really awkward
Meanwhile, Warsh has told the market time and again that he's not going to hold their hands and that they should make their own decisions, but you have to wonder if what he is seeing in the bond market right now is what he had in mind. The yield on the 30-year Treasury bond was trading around 5.24% on Thursday afternoon, just below the 5.31% it briefly hit in August and around its pre-2008 levels.
And of course the long bond isn't alone. Rates are rising for government debt around the world. In fact, given that the Fed really controls only one small bit of the debt market — the overnight interest rate paid on reserves at the Fed — you wonder if anything Kevin Warsh says will make a difference. Who's really in control here?
