Stuart Hoffman
Stuart Hoffman
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The stock and bond markets are looking at the report and seeing the signs of strength, and they know the Fed is doing the same.
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What it does show is that the Federal Reserve has more work to do.
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This is a very weak number and well below what everyone expected. It's not the kind of report the Fed likes to see, but I think they'll recognize that the economy is already rebounding and raise the federal funds target rate to 4.5 percent.
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The bottom line is it is a very solid report, but with continued inflationary pressure building up, it will make it easy for the Fed to conclude (Tuesday's meeting) with a quarter-point increase,
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I think the Fed will move a quarter of a point at the end of June, then they may pause. I don't think they're going to stop. I don't think the ball game is over. I think if we are in the late innings and it's still a tie between the risks of higher inflation and slower growth, as Dick Fisher did say, this could go into extra innings.
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I think the Fed will look at the core number and determine that it was understated, and still raise rates by a quarter-percentage point at the meeting on November 1.
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The underlying message here is that the Fed is rounding for third and heading for home plate. But they are not finished playing yet.
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These are exactly the kinds of things the Fed likes too see. Signs of a slowing in housing and still-contained inflation are the kinds of numbers that speak to the Fed stopping in May, making that their last rate hike.
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There will be some uncertainty in the markets building up at the end of the year. There will be some jitters.
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The results show a stable outlook among business owners for their own sales and profits during the next six months, which suggests they are adapting to higher energy prices and interest rates. Many, however, are taking aggressive steps to counter continued increases in costs for employees' health care coverage, which could mean reductions in benefits for some employees.
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People's wages are going up, but they are not keeping up with inflation.
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People drew some comfort in the smaller-than-expected core index, but I think the core is a bit deceptive.
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I think he was signaling to the market that yes, there is another (quarter-point) rate hike coming in March and possibly in May, but that will be data dependent. He essentially confirmed what the market has already been pricing in, in terms of rate hikes.
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While energy prices are a major concern and price pressures are in the factory pipeline, business is still quite good.