I wrote this while wearing an Apple Vision Pro, while driving a Tesla Cybertruck...you're welcome.
Friday's job report was a blowout, leading to the question of what is the need to cut rates? Average hourly earnings was also much stronger than anticipated. Maybe Powell was onto something when he expressed a desire to see more data before confirming the Fed's policy was restrictive.
Some recent data might lead one to wonder where the elusive "neutral rate" is these days. Powell was asked this in his news conference last week and uncertainty over the neutral rate is now a long forgotten topic, but was
the topic of
Powell's J-Hole address. Continued strong GDP data and Atlanta Fed GDP estimates for 1Q2024 with a 4 handle, obviously lead to the question how does the economy keep expanding. Economist Scott Sumner tackled this topic in his post,
Why might I be wrong about trend GDP? In basic terms, the economy can grow by doing more with the same amount of resources (i.e. Productivity) or by increasing real economic inputs (ex. labor). Sumner hits on the potential grow impact from the politically thorny topic of immigration as an under-looked factor that could be increasing real GDP (see Powell comments from 60 Minutes below...maybe Sumner was onto something)....Elon Musk was busy sharing his own opinions on immigration this weekend.
Powell stayed busy in the news cycle with a 60 Minutes interview and candidate Trump indicating he won't reappoint Powell if elected. I mentioned the need for the Fed to maintain independence in a charged political environment in my last
FOMC Recap.
If you didn't watch Powell on 60 Minutes, he stuck to the FOMC script, implying that March will be too soon to cut rates and that the number of cuts priced in could be on the high side. That said, here's a summary of what I considered to be notable quotes (my emphasis added):
- Right. And we have to, we have to balance those two risks. There is no, you know, easy, simple, obvious path. We have to balance the risk of moving too soon, which, as you mentioned, or too late. And there are different risks. We think the economy's in a good place. We think inflation is coming down. We just want to gain a little more confidence that it's coming down in a sustainable way toward our 2% goal……
- And I can't overstate how important it is to restore price stability, by which I mean inflation is low and predictable and people don't have to think about it in their daily lives…
- I would say it this way. It's really going to depend on the data. The data will drive these decisions..[As to imply there is ever a time that they don't depend on the data]
- We do not consider politics in our decisions. We never do. And we never will....You know, I would just say this. Integrity is priceless. And at the end, that's all you have. And we in, we plan on keeping ours. [Looks like Powell read my FOMC recap]
- Well, interesting, you know, we were being honest, and I was being honest in saying that we thought there would be pain. And we thought that the pain would likely come, as it has in so many past cycles, in the form of higher unemployment. That hasn't happened. It really hasn't happened...
- So, it, I would say this. In the long run, the U.S. is on an unsustainable fiscal path. The U.S. federal government's on an unsustainable fiscal path. And that just means that the debt is growing faster than the economy. So, it is unsustainable. I don't think that's at all controversial. ...
- I don't think there's much risk of a repeat of 2008. I also think, you know, we need to be careful about making proclamations about the -- particularly about the future. Things have surprised us a lot. [First I'll tell you that there is no risk of 2008, but then I'll hedge by telling you I can't predict the future...and that we're often wrong] But no, on this, on this, I do think it's a manageable problem. I think we're doing a lot to manage it.
- I think we need to just remember that we have this dynamic, innovative, flexible, adaptable economy. More so than other countries.....the United States has been the indispensable nation supporting and defending democracy, security arrangements, economic arrangements. We've been the leading voice on that. And it is clear that the world wants that. And I would want the United States to know, people in the United States to know, that this has benefited our country enormously. It benefits our economy so much to have this role.
- We had a combination of rising labor force participation in prime-age workers, and we also had with that, we had a resumption of immigration. So, there was really no immigration net in or very little during the pandemic...But in 2023, we saw immigration move back up to the levels that would have been normal before the pandemic.....Because, you know, immigrants come in, and they tend to work at a rate that is at or above that for non-immigrants. Immigrants who come to the country tend to be in the workforce at a slightly higher level than native Americans do. But that's largely because of the age difference. They tend to skew younger...I will say, over time, though, the U.S. economy has benefited from immigration. And, frankly, just in the last, year a big part of the story of the labor market coming back into better balance is immigration returning to levels that were more typical of the pre-pandemic era.
- I would say it this way. The economy's strong. The labor market's strong. Inflation's coming down. There's no reason why that can't continue. We're gonna try to use our tools to give the economy -- to continue to improve as inflation comes down. We'll give it every chance to do that. That's our plan. We don't have a perfect crystal ball about the future, and things could happen. But I do think the economy is in a good place, and there's every reason to think it can get better.
On the week ahead it will be ISM Services and Fedspeak. And don't forget about geopolitics which Powell called the biggest risk in the near term.
XTOD: The hole in the border fence was way more interesting than Powell.
XTOD (reply): I disagree. He WANTS the subject of deficits to come up. And he WANTS the "politics" to be examined as well. His answer was strong. He knows the crossroads are coming, probably later this year. The Fed will have to decide whether to consider more QE to help Treasury sell debt.
XTOD: We generally don't need more data. Just more insightfulness
XTOD: In the Fall of 2022 Powell was basically begging companies to fire ppl
We've added 4.1 million jobs since then and inflation is down
Coming around to the idea no one really knows what truly drives the economy
And maybe monetary policy doesn't matter as much as we all think
XTOD: BARTIROMO: If things are so bad, how come the stock market is on a roll?
TRUMP: Because they think I'm gonna be elected
BARTIROMO: You think the stock market is rallying because people think you're going to be elected?
XTOD: James Clear: "I think about decisions in three ways: hats, haircuts, and tattoos.
Most decisions are like hats. Try one and if you don't like it, put it back and try another. The cost of a mistake is low, so move quickly and try a bunch of hats.
Some decisions are like haircuts. You can fix a bad one, but it won't be quick and you might feel foolish for a while. That said, don't be scared of a bad haircut. Trying something new is usually a risk worth taking. If it doesn't work out, by this time next year you will have moved on and so will everyone else.
A few decisions are like tattoos. Once you make them, you have to live with them. Some mistakes are irreversible. Maybe you'll move on for a moment, but then you'll glance in the mirror and be reminded of that choice all over again. Even years later, the decision leaves a mark. When you're dealing with an irreversible choice, move slowly and think carefully." (From @JamesClear 's 3-2-1 newsletter)
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