Basic Training August 1997. Fort Benning, GA. Our Drill Sergeants told us a lot of memorable things, most of which I can’t repeat here (not because I fear offending you, but because your email security will flag it and The Real Boss™ is all about those readership stats).
I remember one particularly imposing Drill Sergeant telling us, “I’m not afraid of the guy that is running his mouth all the time. Telling me he’s going to beat me up. Chirpin’. I’m worried about the quiet guy that walks up and just starts swinging. The talkin’ means he doesn’t actually want to fight. If he did, he’d just start swinging. Threats are a sign of weakness, and it means I know you don’t actually want to fight. Now I have the advantage.”
I don’t know why that story popped into my head this cloudy Easter morning…
Last Week This Morning
10T: 4.34%
2T: 3.85%
SOFR: 3.65%
Term SOFR: 3.66%
JOLTs Job Openings lowest since GFC
Non-Farm Payrolls: 178k vs. 65k expected
Unemployment Rate: 4.3% vs. 4.4% expected
Fed Speech
Powell: "You have to carefully monitor inflation expectations because you could have a series of big supply shocks and that can lead, you know, the public generally, businesses, price setters, households ... to start expecting higher inflation over time. Why wouldn't it?"
Those Jobs Tho!
What an amazing report! Huge upside jobs gained and unemployment back down to 4.3%. Even though last month’s terrible -92k was revised even terrible-r to -133k, January was revised up 33k. Single greatest job market in the history of the universe! By now you know what comes next…
The San Fran Fed’s weather adjusted analysis shows that March’s weather was so good that it swung the number by more than 250k jobs (SFF weather adjusted).
Adjusting for the weather benefit, the economy would have lost 80k jobs last month, not gained 178k.
The wild swings in monthly job data are incredible right now. Here are the monthly prints since the start of 2025.
The average is about +20k per month, but one standard deviation is 100k!
Compare this to the last normal job market we had (2018-2019) when the average monthly job gain was 190k and one standard deviation was 50k.
Said another way, the ratio of mean to SD was 3.5:1. Today, it’s 0.2:1. The data has become more noise than signal. Statisticians would call this a low signal-to-noise environment. How can the Fed be data-dependent on data that has no dependable signal?
One of the very best economists in the country, Neil Dutta, “the surest sign of a tight labor market is accelerating wage growth and there is limited evidence of this at the moment.” Here’s the average hourly earnings graph he included with his commentary. Falling wages doesn’t suggest a strong labor market.
Joseph Bruseulas pointed out that even though a 3.5% wage growth might feel like a decent number, it’s important to keep in mind that those numbers are before adjusting for inflation. With inflation sure to climb, real wages are effectively flat and may go negative. That can’t be good for consumer sentiment.
“Good luck explaining -3k per month equals full employment,” Powell to Warsh
Whatever the 178k eventually gets revised down to, there is mounting evidence that the new monthly breakeven number is somewhere around 0, and maybe even zero.
Even if I think the 178k is bogus, I need to adjust my expectations for what constitutes a reasonable NFP. Breakeven used to be somewhere around 100k; however, immigration policies dramatically lowered that. Early research suggested 30k, then 20k and now apparently a negative number is still not bad news.
According to a Dallas Fed research piece released on Wednesday (breakeven), the new monthly breakeven NFP is -3k. That’s why the unemployment rate is remaining flat while job growth is flat.
Another one of my favorite economists, Claudia Sahm, highlighted a very odd situation occurring right now, backed up by the CBO’s own forecasts. The graph below highlights the two components of GDP potential – productivity (grey) and employment growth (blue). It’s a little hard to read, but the far right bar is entirely productivity gains. Job creation is not contributing one bit to GDP growth.
No hire, no fire. The jobless recovery. Whatever you want to call it, the data suggests that job growth is unlikely to drive the economic engine for the foreseeable future.
Rates
Markets are now pricing in a coin toss whether the Fed’s next move is a hike or cut. I think this is crazy. The Fed won’t hike because of an oil shock because it wouldn’t help.
The next move is still a cut, it’s just getting pushed back. I heard a lot of chatter this week about whether Powell will use his last meeting to set the stage for a possible hike.
There’s no way Powell is going to signal a potential hike.
Powell wants to pass the baton with as much neutrality as possible. He doesn’t want to be accused of political partisanship. Plus, I think he genuinely believes no change to rates is the best policy right now.
Now that Bondi has been canned, I expect the DoJ investigation into Powell to quietly wrap up and pave the way for Warsh. That would make the April 29th FOMC meeting Powell’s last as Chair. Warsh will inherit a tricky situation, but Powell won’t compound it with last second musings about a hike.
Cap prices found a little relief last week following a brutal March. They’re off their peak, but they won’t fall significantly until we have: 1. More clarity the next move is not a hike, and 2. Volatility dissipates.
The 10 Year Treasury continues to experience upward pressure as the conflict in Iran causes extreme volatility in oil. I think the longer the conflict drags on, the greater the potential for economic damage.
Eventually, the bond market will shift its focus to that slowdown instead of inflation. But for now, traders don’t want to get steamrolled by hot inflation prints that cause Treasury selling.
Technical levels
Current: 4.34%
High side: 4.49% then 4.62%
Low side: 4.20% then 4.12%
Week Ahead
Nothing major, which means Iran/oil is all that matters.