Labor Markets
If there’s one takeaway from this meeting, it’s that the Committee wants to position themselves much more cautiously on the inflation outlook, but the Fed is just a couple of bad labor market prints from having to put more cuts back on the table.
The labor market is treading water at this point. It’s not drowning, but it’s unclear how long it can remain in this state.
Due to the October payroll number marred by hurricanes and the Boeing strike, the real signal comes from the household survey (where those who are absent due to weather are still counted as employed) and the negative revisions to previous months.
Make no mistake: this is good news. The Fed has made a commitment to not allowing the labor market to deteriorate further, and we’d rather not see that commitment tested.
“The time to support the labor market is when it’s strong, and not when you begin to see layoffs.”
Our new baseline is a 50 bps cut with a total of 75 bps of cuts in the SEP for 2024. It’s a close call but we think a 50 bps cut is more likely than a 25 bps cut. We think a 50 bps point cut is the right move.
Even though today’s report gave back some of the weakness in the July household survey, the reversion was slight. The August report meets the conditions we laid out yesterday for a 50 bps cut in September to play catch-up.
