Vice Chair Michelle Bowman said on Friday that it is time for the FOMC “to act decisively and proactively to address decreasing labor market dynamism and emerging signs of fragility.”
Not to be outdone, newly minted Fed Governor Stephen Miran said the Fed should immediately begin cutting 50bps at every meeting until Fed Funds is between 2%-2.5%: a full 2% below current levels.
I would never do anything to draw attention to myself…or brag…or say “I told you so”…that’s just not my style…
So I would obviously never declare myself the greatest interest rate observer in the world…some might say it about me, but I would never say it…
Last Week This Morning
Inflation
Last week’s benign inflation report goes a long way towards cementing a cut on October 29th. Markets have an 88% probability of a cut and a 65% probability of a second cut by year end.
That would put Fed Funds at 3.5%-3.75%. Other than a brief time at the end of last year, it will likely result in floating rates below fixed rates for the first time since the Fed started hiking three years ago. We are this close to positive leverage!
The main takeaway from that inflation print is that it gives the Fed permission to focus on the labor market…and several members are taking advantage of it. Miran, Bowman, and Waller, all jockeying for the Fed Chair position, all focusing on the labor market weakness, all calling for bigger rate cuts.
In addition to the comments in the opening, Bowman also said, “we are at serious risk of already being behind the curve in addressing deteriorating labor market conditions,” and noted “should these conditions continue, I am concerned that we will need to adjust policy at a faster pace and to a larger degree going forward.”
Screaming into the void pays off sometimes…
Jobs Jobs Jobs
If the government shuts down on Friday, there’s a good chance we don’t get the labor market data on Friday. Heck, maybe that’s better than getting a BS number for the market to overreact to.
Friday’s NFP is expected to come in at 50k, which basically means 0 once you account for the inevitable 50k downward revision in two months.
The unemployment rate is expected to hold steady at 4.3%. This would be welcome news because it means companies haven’t transitioned from “not hiring” to “firing.”
But the Fed needs to act decisively to stop applying this much braking action on the economy.
Oh, and I wonder what the impact of 800k+ furloughed employees has on the economy?
10 Year Treasury Yield
Pretty please, with sugar on top, don’t assume the T10 will move lower just because the Fed cuts.
Those cuts are already priced into the 10 Year Treasury.
Changes to those rate cut expectations will drive fixed rates.
Here’s an overly simplistic way to view 10 Year Treasury movements in 2026.
The Week Ahead
About 111,030 Fed speeches this week, which totally coincidentally matches the attendance record at Beaver Stadium. We’ll need to take that down if we hope to beat Oregon, but I’ll let you know how it goes.