Daily Economic Update: March 7, 2024

Powell stayed on his talking point that the Fed needs to see more evidence that inflation will get to and stay at 2% target before cutting rates.  The market seemed to cheer on the fact that Powell at least doesn’t think the Fed will need to hike again. Even NYCB couldn’t derail a bit of a relief rally (looks like maybe some crony capitalism with the Mnuchin deal, who knows). The 10Y yield fell to 4.10% while the 2Y fell to 4.56%.

ADP comes in less than expected at 140K vs. 150K est.  As an observer the correlation between ADP and the Non-farm payrolls is weak at best, so I'm not sure how much stock markets place in the ADP number as a predictor.

The JOLTS data showed job openings falling slightly but beating consensus forecast.  Quits and hiring both fell slightly but remain robust.  Speaking of job openings there are plenty of post on LinkedIn where people are complaining that job post on LinkedIn are not really for jobs that exist, theorizing that many posting are made by companies simply to create the impression that the company posting is growing rapidly. This has lead some LinkedIn candidates to ponder whether anyone has actually been hired from a job posting on LinkedIn.

There have been a few interesting Fed related post on inflation and the level of interest rate policy.  One of the post was by the St. Louis Fed and seeks to analyze the output gap, how closely the economy is functioning to it's long-run production capability, and concludes that a a Taylor Rule would imply that interest rates should be at around 5% to react to the current output gap.   A second post was from the NY Fed discussing inflation expectations and completing the 'last mile' of returning inflation to target.  That post looks at New Keynesian models and concludes that bringing inflation down is dependent upon expectations for labor market conditions driven by macroeconomic policy.  What I find interesting in this post is the author's conclusions, which show scenarios where inflation doesn't return to the 2% target until 2025 at the earliest:

"The model predicts that further disinflation—the final mile—is likely to be gradual. It bears emphasizing that these are our model-based forecasts and not official projections.

What affects the speed of disinflation? In the chart below, the left panel presents three forecast scenarios for inflation based on possible future paths of the unemployment rate, shown in the right panel. When the unemployment rate rises faster than the baseline forecast, then underlying inflation reaches its long-run trend (red line) by the end of 2025 (gold line). However, when the unemployment rate moves sideways, then the pace of disinflation is slower (blue line)."

On the day ahead it's jobless claims and moar Powell. 

 XTOD: This guy put $260 into a meme coin named “Jeo Boden” 3 days ago…It’s now worth $433,000. I love this country.

XTOD: This. Emphasis on the years of upcoming capital spend needed to make up for 4 decades of outsourcing/asset light businesses/ "financialization" of returns. The US corporate pendulum will swing back from extreme Wall Steet efficiency closer to Main Street efficacy.

XTOD: The yen extended gains against the dollar to as much as 0.5% on news that the Bank of Japan has tacit approval from some government officials to end its negative interest rate policy in the near term: BBG

XTOD: Can’t get this chart out of my head. It points to a culture that is not just stuck but dead. 

If you abdicate your attention to addiction, you cease being 'you.' You’ve stepped into the pod, made yourself comfortable, said thank you.  https://pbs.twimg.com/media/GH_zVKeXoAERIrz?format=png&name=medium

XTOD: The modern HF industry went vertical on AUM when $SPY did nothing from the tech bubble top in 2000 until post the GFC in 2010.  The modern HF industry was destroyed when the $SPY went vertical from the GFC lows of 666 to 5000+ as it wasn’t needed anymore.    It was never about limiting vol and always about total return.

XTOD (John Cochrane gets into with MMTers): Easy. 27% rise in nominal GDP (Q1 2021-now) = 27% rise in real GDP, not 9% rise in real GDP and 18% rise in prices. MMT said "there is always slack," so printing money won't cause inflation. The experiment was just run.

XTOD: “How inexplicable it seems.   "If one sets aside time for a business appointment, a trip to the hairdresser, a social engagement or a shopping expedition, that time is accepted as inviolable.  

"But if one says: I cannot come because that is my hour to be alone, one is considered rude, egotistical or strange.”  ― Anne Morrow Lindbergh, Gift from the Sea

https://x.com/Geiger_Capital/status/1765470592503795805?s=20

https://x.com/HistoryInvestor/status/1765500444913041652?s=20

https://x.com/zerohedge/status/1765554838534774921?s=20

https://x.com/CorneliaLake/status/1765203949231993220?s=20

https://x.com/JohnHCochrane/status/1765459172970398192?s=20

https://x.com/GregoryMcKeown/status/1765360756164546602?s=20