By: Russ Kamp, Managing Director, Ryan ALM, Inc.
OOPS! I guess that forecasts anticipating the “collapse” of the US labor market were a bit premature. The announcement that the US added 263,000 new jobs blew away forecasts. The fact that October’s job # was revised to 284,000 new jobs won’t help either. Wage growth increased to 0.6% for the month and last month’s # was revised up by 0.1%. Real Rates? We aren’t close to having real rates. As a result, interest rates are once again rising today after weeks of bonds rallying out of anticipation that the job market was weakening and as a result, the Fed would have to soon pivot. In a post that we recently produced, “Slowing? Possibly.” we highlighted that the Fed was continuing to focus on jobs, wages, and real rates and that a Fed pivot wasn’t likely at this time.
Unfortunately, others didn’t see it that way. It certainly didn’t seem to matter to market participants that the Fed has said repeatedly that they needed to see the EVIDENCE of a weakening labor market, lower wage growth, and a desire to raise rates until a level of REAL rates is created. Clearly, none of that has happened! Yet, until today both equity and bond markets rallied as if all of the Fed’s concerns had been realized. Again, I don’t believe that a Fed Funds range of 3.75% to 4.0% is going to dramatically thwart economic activity. Market participants need to move away from the concept that rates will remain low forever. This Fed seems hell-bent on not repeating the failures of the 1970s to early ’80s Fed two-step. Will market participants and forecasters finally believe this Fed?