There has been exactly one downward revision bigger than Friday’s.
April 2020.
The 2 Year Treasury yield plunged 27bps.
In response, Trump started firing people at the Treasury, misinterpreting the red change as a bad thing…
Last Week This Morning
WTF is Going On
There was a Fed meeting last week and Friday’s events made me forget it even happened. I recapped the meeting Wednesday here, so let’s talk about the jobs report instead!
On Friday, Trump claimed the jobs report was “rigged” and “faked”. In fairness, Trump has been railing against the strong job numbers all year.
Whoops, wrong one. Try this instead.
Shoot, let me get back to you on that…
I’ve been railing against these shoddy stats for years now. I would have been totally open to an argument that McEntarfer should have done more to minimize these absurd revisions. But rather than highlight that, Trump said she rigged and faked the data to make him look bad. And he touted the numbers when they worked in his favor. Classic Trump.
I do not believe the professionals at the BLS (and BEA) ever manipulate data for political purposes. As I have said over and over again, I don’t blame the statisticians. The response rate to labor surveys has been cut in half, but we haven’t changed how we ask them to report the data. They are doing the best they can with incomplete data. If I had fired every teacher that gave me a bad grade gave me the grade I deserved, I never would have grown into the mediocre interest rate observer before you.
McEntarfer could have done… literally anything… in an attempt to improve the accuracy. Text surveys instead of phone calls? Emails? Pound the table and demand changes in an evolving world? Social media surveys? Or yell from the mountaintop that we shouldn’t trust the monthly data given the deterioration? And maybe she did, but how come I’ve never heard her name before Friday?
If Trump appoints a yes man, markets will trust the stats even less and this could backfire on Trump.
Or we will just get distracted by the next crazy thing that happens this week.
Other Fun Facts from Friday’s report:
Private sector data does suggest the BLS is behind the curve. Orange is BLS, blue is ADP.
BCA’s Director of Research Peter Berezin pointed out that the “Workers Gap” is on the verge of entering negative territory. This is a simple measure of labor supply vs demand. Not good.
Powell’s worst fears are being realized. He was hoping the labor market would hang in there long enough to get to the other side of the inflation burst, but hope is a terrible hedge.
Oh, and we had an inflation report, too. The monthly inflation data came in as expected (0.3%), which allowed the markets to exhale a bit. The headline accelerated to 2.8% and I still think we will get into the 3%’s in the months ahead.
I’ve been critical of the 2% inflation target for years now (they don’t have an explicit unemployment rate target), but I’ve also said they are stuck with it until the inflation battle has been won.
Now I wonder if Powell’s replacement will force the change even if inflation isn’t at 2%? Remember, the US didn’t formally adopt a 2% inflation target until January 2012. Trump can say it was a radical left woke target (even though Fed Chair Bernanke was appointed by Bush) and claim victory.
A Quick Note About the Governor Resignation and Dissents
Fed Governor Adriana Kugler’s term expires in January anyway, so all this does is pull forward her replacement.
If Trump plans on making Bowman or Waller the next Fed Chair, Kugler’s replacement could be anyone friendly to Trump.
But if Trump plans on making someone else Chair, like Hassett, that is who will replace Kugler.
The Board of Governors is 7 seats, one of which is the Chair. When Powell’s term ends as Chair, he is still a Governor (and therefore still has a vote). Although rare, he could stick around until that term expires in January 2028. Trump can only nominate the Fed Chair from the existing Board of Governors, one of which would still be Powell.
From that short list, the only Trump-friendly Governors are Bowman and Waller.
If Kugler’s replacement is someone we have never heard of, it means someone like Hassett is not the next Fed Chair. Hassett wouldn’t take a Fed Governor role without an understanding that he will become Fed Chair. Assuming it’s a big name, that person becomes the Shadow Fed Chair and markets have to listen to both Powell and that person.
Regardless of who Trump nominates, they will most assuredly vote for a cut in September. If the Fed holds rates and Bowman/Waller dissent again, it would be the first time in history three Fed Governors dissented.
And if Powell does depart the Board of Governors next year, Trump will get to fill that vacancy, too. That would translate into Trump appointments filling 4 of 7 Governor roles.
There are 12 voting members when it comes to rate decisions, with a simple majority winning.
I think Trump will move quickly to nominate and confirm someone before the September meeting and that person becomes the Shadow Fed Chair. And that sets the stage for a bizarre Jackson Hole at the end of the month.
Rates
The NFP revision wasn’t the only the statistical outlier on Friday.
Odds of a September cut are back up to 80%.
The T10 lower resistance levels could be tested: We’re at 4.21%, right at the 4.19%-ish resistance level. After that, it’s 4.13%...and then 4%.
The Week Ahead
Maybe we can catch our breath. No data of note, but a few Fed speeches.